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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
(Amendment No. 19)
SOLICITATION/RECOMMENDATION STATEMENT
Pursuant to Section 14(d)(4)
of the Securities Exchange Act of 1934
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ITT CORPORATION
(Name of Subject Company)
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ITT CORPORATION
(Name of Person(s) Filing Statement)
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Common Stock, no par value
(including the associated Series A Participating Cumulative
Preferred Stock Purchase Rights)
(Title of Class of Securities)
450912 10 0
(CUSIP Number of Class of Securities)
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RICHARD S. WARD, Esq.
Executive Vice President,
General Counsel and Corporate Secretary
ITT Corporation
1330 Avenue of the Americas
New York, NY 10019-5490
(212) 258-1000
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of the Person(s) Filing Statement)
With a copy to:
PHILIP A. GELSTON, Esq.
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019-7475
(212) 474-1000
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<PAGE>
INTRODUCTION
The Solicitation/Recommendation Statement on Schedule
14D-9 (the "Schedule 14D-9") originally filed on February 12,
1997, by ITT Corporation, a Nevada corporation (the "Company"),
relates to an offer by HLT Corporation, a Delaware corporation
("HLT") and a wholly owned subsidiary of Hilton Hotels
Corporation, a Delaware corporation ("Hilton"), to purchase
61,145,475 shares of the common stock, no par value (including
the associated Series A Participating Cumulative Preferred
Stock Purchase Rights), of the Company. All capitalized terms
used herein without definition have the respective meanings set
forth in the Schedule 14D-9.
Item 8. Additional Information to be Furnished.
The response to Item 8 is hereby amended by adding
the following after the final paragraph of Item 8:
On July 2, 1997, the Company filed a motion to
dismiss certain counts included in the First Amended and
Supplemental Hilton Complaint or, in the alternative, for
partial summary judgment (the "ITT Motion to Dismiss the
Amended Hilton Complaint") in the U.S. District Court for the
District of Nevada. A copy of the ITT Motion to Dismiss the
Amended Hilton Complaint is filed as Exhibit 66 hereto and is
incorporated herein by reference.
Item 9. Exhibits.
The response to Item 9 is hereby amended by adding
the following new exhibit:
66. ITT Motion to Dismiss Counts III-VII of the First
Amended and Supplemental Complaint or, in the
Alternative, for Partial Summary Judgment dated
July 2, 1997.
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge
and belief, I certify that the information set forth in this
Statement is true, complete and correct.
ITT CORPORATION
By /s/ RICHARD S. WARD
-------------------------
Name: Richard S. Ward
Title: Executive Vice President,
General Counsel and
Corporate Secretary
Dated as of July 10, 1997
<PAGE>
EXHIBIT INDEX
Exhibit Description Page No.
(66) ITT Motion to Dismiss Counts III-VII of the
First Amended and Supplemental Complaint
or, in the Alternative, for Partial Summary
Judgment dated July 2, 1997 ......................
[EXHIBIT 66]
THOMAS F. KUMMER
VON S. HEINZ
KUMMER KAEMPFER BONNER & RENSHAW
Seventh Floor
3800 Howard Hughes Parkway
Las Vegas, Nevada 89109
(702) 792-7000
Attorneys for Defendant/Counterclaimant
ITT CORPORATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEVADA
HILTON HOTELS CORPORATION and )
HLT CORPORATION, )
)
Plaintiffs, )
)
vs. ) Case No. CV-S-97-95-PMP(RLH)
)
ITT CORPORATION, RAND V. )
ARASKOG, ROBERT A. BOWMAN, )
BETTE B. ANDERSON, NOLAN D. )
ARCHIBALD, ROBERT A. BURNETT, )
PAUL G. KIRK, JR., EDWARD C. )
MEYER, BENJAMIN F. PAYTON, VIN )
WEBER, and MARGITA E. WHITE, )
)
Defendants. )
)
- ------------------------------------)
)
ITT CORPORATION, )
)
Defendant and ) MOTION OF ITT CORPORATION TO
Counterclaimant, ) DISMISS COUNTS III-VII OF THE
) FIRST AMENDED AND
vs. ) SUPPLEMENTAL COMPLAINT OR, IN
) THE ALTERNATIVE, FOR PARTIAL
HILTON HOTELS CORPORATION and ) SUMMARY JUDGMENT
HLT CORPORATION, )
)
Plaintiffs and )
Counterdefendants.)
)
- ------------------------------------)
<PAGE>
TABLE OF CONTENTS
PAGE
ITT CORPORATION'S MEMORANDUM OF POINTS AND AUTHORITIES............ 2
Preliminary Statement........................................ 2
FACTUAL BACKGROUND................................................ 3
I. HILTON'S AMENDED COMPLAINT............................... 3
II. HILTON'S KNOWLEDGE OF THE FACTS.......................... 6
ARGUMENT.......................................................... 10
I. HILTON'S NEW CLAIMS SHOULD BE DISMISSED AS BY AND LARGE
NOT RIPE................................................ 10
II. HILTON IS A HOSTILE WOULD-BE ACQUIROR WHOSE BREACH OF
FIDUCIARY CLAIMS SHOULD BE DISMISSED.................... 13
A. Hilton's Claims Are Derivative................... 13
B. These Derivative Claims Should Be Dismissed...... 16
1. Hilton Is Not a Proper Derivative Plaintiff.. 16
2. Hilton Has Failed to Meet the Procedural
Requirements of Rule 23.1.................... 17
III. COUNTS III-V MUST BE DISMISSED FOR FAILURE TO STATE A
COGNIZABLE CLAIM........................................ 17
A. Hilton's Unocal and Revlon Counts Do Not
State a Claim.................................... 17
B. Count V Fails to State a Claim................... 20
IV. THE NEW COUNTS SHOULD BE DISMISSED FOR FAILURE TO JOIN
FELCOR AS A PARTY....................................... 21
V. IN THE ALTERNATIVE, PARTIAL SUMMARY JUDGMENT SHOULD
BE GRANTED.............................................. 22
CONCLUSION........................................................ 25
CERTIFICATE OF SERVICE............................................ 26
<PAGE>
TABLE OF AUTHORITIES
PAGE
CASES
Abromson v. American Pacific Corp., Nos. 96-15250, 96-15316,
1997 WL 297723, (9th Cir. June 5, 1997)........................ 22
Arizona v. Atchison Topeka and Santa Fe R.R.,
656 F.2d 398 (9th Cir. 1981)................................... 10, 11
Barnes v. Arden Mayfair, Inc., 759 F.2d 676 (9th Cir. 1985)...... 22
Baron v. Strawbridge & Clothier, 646 F. Supp. 690
(E.D. Pa. 1986)................................................ 17
Bragger v. Budacz, 1994 Del. Ch. LEXIS 202 (Del. Ch.
December 7, 1994).............................................. 20
Buchanan v. Henderson, 131 B.R. 859 (D. Nev. 1990)............... 15
Chrysogelos v. London, No. Civ. A. 11,910, 1992 Del. Ch.
LEXIS 61 (1992)................................................ 11
Crane Co. v. Anaconda Co., 411 F. Supp. 1208 (S.D.N.Y. 1975)..... 13
Duval Ranching Co. v. Glickman, No. CV-N-95-38-ECR, 1997 U.S.
Dist. LEXIS 7251 (D. Nev. March 13, 1997)...................... 11
Eagle v. AT&T, 769 F.2d 541 (9th Cir. 1985)...................... 14
Friedman v. Mohasco Corp., 929 F.2d 77 (2d Cir. 1991)............ 14
Greenspun v. Del. E. Webb Corp., 634 F.2d 1204 (9th Cir. 1980)... 17
Guenther v. Pacific Telecom, Inc., 123 F.R.D. 341 (D. Or. 1988).. 14
Hall v. Aliber, 614 F. Supp. 473 (E.D. Mich. 1985)............... 17
Hilton Hotels Corp. v. ITT Corp., 962 F. Supp. 1309
(D. Nev. 1997)................................................. 12, 19
KDT Industries, Inc. v. Home Insurance Co., 603 F. Supp. 861
(D. Mass. 1985)................................................ 15
Kahn v. Sprouse, 842 F. Supp. 423 (D. Or. 1993).................. 14
Kern River Gas Transmission Co. v. Clark County, 757 F. Supp.
1110 (D. Nev. 1990)............................................ 10
Lewis v. Chiles, 719 F.2d 1044 (9th Cir. 1983)................... 15, 17
Lipton v. News Int'l, PLC, 514 A.2d 1075 (Del. 1986)............. 16
Lomayaktewa v. Hathaway, 520 F.2d 1324 (9th Cir. 1975)........... 21
Moran v. Household Int'l, Inc., 490 A.2d 1059 (Del. Ch. 1985).... 16
Morongo Band of Mission Indians v. California State Board of
Equalization, 858 F.2d 1376 (9th Cir. 1988).................... 11
National Licorice Co. v. NLRB, 309 U.S. 350 (1940)............... 21
<PAGE>
PAGE
Nelson v. Sierra Constr. Corp., 364 P.2d 402 (Nev. 1961)......... 13
O'Hare v. Marine Elec. Co., 229 Cal. App. 2d 33 (1964)........... 14
O'Neill v. Church's Fried Chicken, Inc., 910 F.2d 263 (5th
Cir. 1990)..................................................... 14
Pacific Gas & Elec. Co. v. State Energy Resources Conservation
& Dev. Comm'n., 461 U.S. 190 (1983)............................ 11
Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173
(Del. 1986).................................................... 6, 19
Ripplinger v. Collins, 868 F.2d 1043, 1047 (9th Cir. 1989)....... 11
Ross v. Bernhard, 396 U.S. 531 (1970)............................ 13
In re Santa Fe Pacific Corp. Shareholder Litig., 669 A.2d 59
(Del. 1995).................................................... 18, 20
Sax v. World Wide Press, Inc., 809 F.2d 610 (9th Cir. 1987)...... 14, 15 ,16
Schaffer v. Universal Rundle Corp., 397 F.2d 893 (5th Cir. 1968). 15
SEC v. Carter Hawley Hale Stores, Inc., 587 F. Supp. 1248 (C.D.
Cal. 1984)..................................................... 22
Starbird v. Lane, 203 Cal. App. 2d 247 (1962).................... 14
Stepak v. Schey, 553 N.E.2d 1072 (Ohio 1990)..................... 19
Stroud v. Milliken Enters., Inc., 552 A.2d 476, 481 (Del. 1989).. 12
In re Syntex Corp. Sec. Litig., 95 F.3d 922 (9th Cir. 1996)...... 3
Thomas v. Union Carbide Agric. Prods. Co., 473 U.S. 568 (1985)... 10
Tomczak v. Mortn Thiokol, Inc., Civ. A. No. 786, 1990 WL 42607
(Del. Chi. Apr. 5, 1990)....................................... 20
In re Tri-Star Pictures, Inc., Litig., 634 A.2d 319 (Del. 1993).. 16
Umbriac v. Kaiser, 467 F. Supp. 548 (D. Nev. 1979)............... 20
Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985)..... 6
Wells Fargo & Co. v. First Interstate Bancorp., Civ. A. Nos.
14696, 14623, 1996 WL 32169 (Del. Ch. Jan. 18, 1996)........... 11
Wilmac Corp. v. Bowen, 811 F.2d 809 (3rd Cir. 1987).............. 12
STATUTES
NRS ss. 78.115................................................... 2, 19
NRS ss. 78.120................................................... 18
<PAGE>
PAGE
NRSss.78.138..................................................... 14, 19
NRSss.78.138(1).................................................. 18, 19
NRSss.78.138(3).................................................. 19, 20
NRSss.78.138(4).................................................. 18, 19
NRSss.78.565..................................................... 20
RULES
Fed. R. Civ. P. 12(b)(1)......................................... 1, 11
Fed. R. Civ. P. 12(b)(6)......................................... 1, 18
Fed. R. Civ. P. 12(b)(7)......................................... 1
Fed. R. Civ. P. 19(a)............................................ 21, 22
Fed. R. Civ. P. 23.1............................................. 1, 13, 16, 17
Fed. R. Civ. P. 41(b)............................................ 1, 17
Fed. R. Civ. P. 56(b)............................................ 1
Fed. R. Civ. P. 56(c)............................................ 22
Local Rule 78-2.................................................. 1
TEXT AND TREATISES
12B William Fletcher, Cyclopedia of the Law of Private
Corporations (perm. ed. rev. vol. 1993)........................ 14
Charles Wright, Arthur Miller & Mary Kane, Federal Practice and
Procedure (1986)............................................... 15
<PAGE>
Defendant/counterclaimant ITT Corporation ("ITT")
respectfully moves the Court for dismissal of Counts III-VII of
plaintiffs/counterdefendants Hilton Hotels Corporation and HLT
Corporation's (collectively "Hilton") First Amended and
Supplemental Complaint ("amended complaint") or "Am. Cpl.")
pursuant to Fed. R. Civ. P. 12(b)(1), 12(b)(6), 12(b)(7), 23.1
and 41(b) or, in the alternative, for partial summary judgment
pursuant to Fed. R. Civ. P. 56(b). ITT's motions relies upon
the following memorandum of points and authorities, the
affidavit of Von S. Heinz ("Heinz Aff."), the affidavit of
Hervey Feldman ("Feldman Aff.") and the oral argument of
counsel as may be presented at a hearing on this motion to the
extent that this Court in its discretion decides a hearing is
necessary pursuant to LR 78-2.
DATED this 2nd day of July, 1997.
Respectfully submitted,
KUMMER KAEMPFER BONNER & RENSHAW
By /s/ Von S. Heinz
------------------------------
THOMAS F. KUMMER
VON S. HEINZ
Seventh Floor
3800 Howard Hughes Parkway
Las Vegas, Nevada 89109
Attorney for Defendant/
Counterclaimant
ITT CORPORATION
<PAGE>
ITT CORPORATION'S MEMORANDUM OF POINTS AND AUTHORITIES
Preliminary Statement
On May 21, Hilton essentially admitted that its original
complaint was moot by stipulating that no discovery would occur
"at this time". Then, Hilton suddenly changed course. Without
amending its complaint or consulting ITT, Hilton, seeking
commercial advantage, served broad discovery requests on ITT and
its financial advisors. A week later, in an effort to justify its
inappropriate and unsupportable pre-complaint discovery, Hilton
amended its complaint, adding five new claims and the ITT
directors as defendants.[1] Hilton now seeks essentially an
advisory opinion that ITT's entering into certain hypothetical
transactions would be a breach of defendants' fiduciary duties.
Although Nevada law provides that "[t]he business of every
corporation must be managed by a board of directors" (NRS Section
78.115), Hilton improperly asks the Court to replace ITT's Board
as the party responsible for managing ITT and to replace the
market as the arbiter of ITT's business and financial performance
(and Hilton's bid).
Hilton's new claims should be dismissed for at least the
following reasons. First, Hilton's new claims should be dismissed
to the extent that they are not ripe. (See Point I, infra.)
Second, Hilton's new claims are derivative and are neither
properly brought nor properly pleaded by Hilton. (See
- --------
[1] The director defendants have not yet been served.
<PAGE>
Point II, infra.) Third, Counts III-V fail to state a claim
under Nevada law. (See Point III, infra.) Fourth, although
Hilton asks for rescission and reformation of the FelCor
agreement, Hilton has improperly failed to add FelCor, a
necessary party, as a defendant. (See Point IV, infra.) Fifth,
even if not all the new claims are dismissed on their face,
undisputed facts about the challenged change-in-control option
in the FelCor management agreement and the fifty-eight other
"management" agreements alleged in the complaint make partial
summary judgment appropriate. (See Point V, infra.)
Factual Background [2]
I. Hilton's Amended Complaint
On January 27, 1997, even before it had launched its hostile
bid to acquire ITT, Hilton filed this action, naming ITT as the
sole defendant.[3] Hilton took no discovery on that complaint,
not even in connection with the three preliminary injunction
motions it brought based on the original complaint.
On May 19, ITT announced the creation of a long-term
strategic alliance with FelCor Suites, L.P. ("FelCor"), beginning
with (i) an agreement in principle for FelCor to
- --------
[2] Except to the extent that specific additional facts are
cited in support of ITT's alternative motion for summary
judgment, the well- pleaded facts in Hilton's amended complaint
are accepted as true for the purposes of ITT's motion to
dismiss. See In re Syntex Corp. Sec. Litig., 95 F.3d 922, 926
(9th Cir. 1996).
[3] Counts I, II and III of Hilton's original complaint are,
respectively, Counts I, II and VIII of the amended complaint.
<PAGE>
purchase five ITT hotels for $200 million in cash and (ii) an
agreement for ITT to manage the hotels for FelCor for twenty
years. (Am. Cpl. Paragraph 25.)[4] Hilton does not claim the
price for these hotels is inadequate.
On May 21, Hilton and ITT jointly submitted and this Court
approved a Discovery Plan and Scheduling Order ("Discovery
Plan"). While reserving the right to seek future discovery,
Hilton represented that it did not "intend[] to take discovery at
this time". (Discovery Plan Paragraph 3(a).)
On June 5, Hilton, without consultation with ITT, suddenly
noticed wide-ranging discovery from ITT, its financial advisors
and FelCor, essentially seeking expedited discovery that went far
beyond the scope of any issues raised by the original complaint.
The scope and speedy publication of the discovery noticed by
Hilton and the lack of any cognizable claim supporting it
strongly suggested that Hilton noticed such discovery primarily
to chill the capital markets from supporting the FelCor
transaction, to deter other companies from negotiating agreements
with ITT, and to obtain an improper advantage in the marketplace.
When Hilton was confronted with the improprieties of the
discovery requested, it eventually proposed to file an amended
complaint. On June 12, Hilton sent ITT a copy of its amended
complaint, which challenges the change-of-control provisions
- --------
[4] The FelCor transaction involves only five of ITT's more than
400 hotels and resorts.
<PAGE>
in the FelCor/ITT management agreement and fifty-eight other
unidentified "management agreements";[5] and the alleged
"dismemberment" of ITT's "core hotel business". (Am. Cpl.
Paragraphs 25, 27.)
Hilton alleges that: (a) the FelCor change-of- control
provision is "an attempt to deter Hilton . . . from acquiring
control of ITT" (Paragraph 25) and is "irresponsible and
unnecessary" (quoting a June 2 letter from Hilton's CEO to ITT's
Board) (Paragraph 26); (b) the change-of-control provisions at
issue are "a pure entrenchment device" and "a 'poison pill'
designed to destroy the value of ITT" (Paragraph 33) and are
"designed to make ITT takeover-proof" (Paragraph 45); and (c)
"the change-of-control provisions at issue do not serve any
legitimate purpose of FelCor or other purchaser of ITT assets"
(Paragraph 32).
Likewise, Hilton alleges that ITT may sell "all or
substantially all of its property" without a stockholder vote,
and that "crown jewel" sales (with management contracts that
"could include" change-in-control clauses) may be negotiated in
the future. (Am. Cpl. Paragraphs 25, 27, 56) (emphasis added).
Hilton alleges further that: (a) "[a]ny further effort by ITT or
the ITT Board [to undertake various acts] would . . .
- --------
[5] The management agreement between FelCor and ITT contains
provisions permitting, but not requiring, FelCor to terminate
the contract if there is a change in control of ITT. (Am. Cpl.
Paragraphs 25-26.) Hilton alleges that, in addition to the
FelCor agreement, since the beginning of 1997, ITT has added to
ITT's roster of managed hotels fifty-eight hotels most of which
have change-of-control provisions in their management
agreements with ITT. (Am. Cpl. Paragraphs 27, 44, 59).
<PAGE>
constitute a breach of fiduciary duty" (Paragraph 38) (emphasis
added); (b) that the "threatened disposition of . . . 'crown
jewel' hotels . . . threaten[s] to be [an] unreasonable
response" to Hilton's tender offer (Paragraph 44) (emphasis
added); (c) ITT may sell substantially all of its assets
without a shareholder vote (Paragraph 56) (emphasis added); and
(d) ITT may "enter into additional management contracts"
(Paragraph 59) (emphasis added).
Based on these "factual" allegations, Hilton brings the
following new claims:
(a) a Unocal breach of fiduciary duty claim (Count
III), namely that the FelCor transaction, additional
management agreements and possible future acts "are, or
threaten to be, unreasonable responses by the ITT Board of
Directors to Hilton's tender offer" under the standard set
in Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946 (Del.
1985) (Paragraph 44);
(b) a Revlon breach of fiduciary duty claim (Count
IV), namely that the FelCor transaction and potential
future acts by ITT's Board "constitute a break-up of ITT"
requiring an auction of ITT under the standard set in
Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506
A.2d 173 (Del. 1986) (Paragraph 49);
(c) a Nevada statutory claim (Count V); namely that
"ITT is threatening to sell all or substantially all of
its property and assets without the required shareholder
vote under Nevada law" (Paragraph 56);
(d) a breach of fiduciary duties claim (Count VI),
namely that the ITT/FelCor management contract, the other
management contracts and possible future management
contracts are ultra vires acts (Paragraph 59); and
(e) a breach of fiduciary duties claim (Count VII),
namely that the ITT directors breached their duty of
loyalty through unspecified acts (Paragraph 62).
II. Hilton's Knowledge Of The Facts
<PAGE>
In its January 31, 1997 14D-1 Tender Offer Statement, Hilton
disclosed that it had "reached a preliminary understanding with
HFS under which HFS would license, on a long-term, worldwide
basis, [ITT's] 'Sheraton' trademark, franchise system and
management agreements" and that moneys received by Hilton from
HFS in exchange for this license would be used to assist in
financing Hilton's acquisition of ITT. (Heinz Aff. Ex. A.)
In its February 12, 1997 14D-9 disclosure, ITT noted that
one of the reasons that the ITT Board unanimously determined that
the Hilton transaction was inadequate and not in the best
interests of ITT or its stockholders was:
"the absence of information regarding the role of HFS
Incorporated ("HFS") in the Hilton Transaction and the
Board's concern about possible adverse effects on the value
of an investment in Hilton securities following any
combination with [ITT], including the potential negative
impact of HFS's involvement in the Hilton Transaction on the
value of [ITT's] Sheraton and Four Points hotel businesses,
[and] the potential disruption of [ITT] hotel management
contracts and franchise arrangements (as evidenced by
communications from existing hotel owners and franchisees
opposing any plan for HFS to assume these contracts), . . ."
(Heinz Aff. Ex. B.)
In fact, Hilton's long pending takeover attempt and its
plans as part of that effort to turn over the "Sheraton" brand
and management agreements to HFS have created serious concerns
for third parties interested in entering management or franchise
agreements with ITT for the "Sheraton" brand. The problem is the
inevitable creation of Hilton's own hostile takeover attempt and
Hilton's own decision to include HFS in its hostile acquisition
<PAGE>
strategy. Hilton has known since before it filed its amended
complaint that its involvement of HFS has motivated franchisees
to insist on change-of-control provisions.
On about May 28, 1997, prior to Hilton serving its discovery
notices or amending its complaint, Hervey Feldman, Chairman of
the Board of Directors of FelCor, spoke on the telephone to
Stephen Bollenbach, the President and CEO of Hilton. (Feldman
Aff. Paragraph 3.) During that conversation, Mr. Bollenbach asked
Mr. Feldman "whose idea" the change-of-control provision in the
FelCor/ITT management contract had been. (Id. Paragraph 4.) Mr.
Feldman "told him that it was FelCor's idea and that FelCor had
insisted that such a provision be included." (Id.) Mr. Feldman
explained to Mr. Bollenbach:
"that FelCor wanted to have the ability to determine who
managed FelCor's properties and under what flag or brand the
hotels operated. In particular, FelCor was concerned over what
Hilton intended to do with the Sheraton brand in the event that
Hilton acquired ITT. I indicated that it was my understanding
that, in the event of a Hilton acquisition of ITT, Hilton's
current intention was not to manage the Sheraton brand itself,
but rather to pass the Sheraton brand on to HFS. I explained to
Mr. Bollenbach that FelCor did not want HFS to manage any
hotels FelCor owned." (Id. Paragraph 5.)
Mr. Feldman explained that "FelCor had thus insisted on the
change of control provision in the management contract because
of the uncertainty about what would happen to the Sheraton
brand in the event of a Hilton acquisition." (Id.)
Mr. Feldman went on during that conversation to tell Mr.
Bollenbach that:
"if he could assure me that Hilton itself would manage and
support the Sheraton brand in the event of an acquisition
or that the hotels could be reflagged as
<PAGE>
Hilton hotels rather than going to HFS, I would talk with
him about agreeing not to exercise the option in the event
Hilton acquired ITT." (Id.)
Although Mr. Bollenbach agreed to think about providing such an
assurance (id.), Mr. Bollenbach declined to provide such an
assurance:
"Mr. Bollenbach said . . . it remained Hilton's plan to go
forward with a deal with HFS in which HFS would run the
Sheraton trademark, franchise system and management
agreements. I told Mr. Bollenbach that in that case I had
no choice but to continue FelCor's insistence on including
the change-of-control option in our deal with ITT." (Id.
Paragraph 9.)
FelCor is like other hotel owners with concerns about
entering management or franchise agreements with ITT concerning
the Sheraton brand with the prospect that HFS might come to
control that brand if Hilton succeeds in acquiring ITT. To cope
with the problem created by the pending Hilton bid and Hilton's
HFS strategy,[6] ITT has been compelled to agree to change of
control provisions when entering into franchise and management
agreements. By agreeing to such provisions where the third
party demands it, ITT has been able to continue to grow its
business and enhance stockholder value in the face of Hilton's
ongoing hostile takeover attempt, and in alliance with HFS.
Further, the FelCor transaction is not the real objective of
- --------
[6] It is ITT's understanding that the alleged additional
"management" contracts referred to in the amended complaint are
franchise or management agreements entered into by ITT/Sheraton
during 1997 as part of ITT's ongoing effort to grow Sheraton's
business even while Hilton's tender offer is pending. For the
purposes of this motion, ITT treats as true Hilton's
allegations concerning those agreements.
<PAGE>
this litigation for Hilton:
"When I also expressed skepticism that the FelCor deal,
which is for a very small percentage of ITT's assets,
could have any impact on the multi-billion dollar Hilton
offer, Mr. Bollenbach agreed that he was not worried
about the FelCor deal itself." (Id. Paragraph 6.)
In addition, during the June 1 conversation Mr. Bollenbach told
Mr. Feldman:
"of a letter he was planning to send to ITT complaining
about the FelCor transaction, said that he believed the
letter would not hurt the FelCor transaction, and that
Hilton hoped it would stop ITT from selling any more
hotels". (Id. Paragraph 8.)
In fact, Hilton made sure that the new allegations set
forth in its amended complaint and its demands for a "wide
range" of "hurry-up" discovery were publicized widely by June
9, even though Hilton did not actually show ITT its amended
complaint until June 12. (E.g., Heinz Aff. Ex. C.) Hilton still
has not served the ITT directors who are new defendants in the
amended complaint.
<PAGE>
Argument
I. HILTON'S NEW CLAIMS SHOULD BE DISMISSED AS BY AND LARGE NOT
RIPE
Hilton seeks in its new claims relief from all manner of
speculative future events.[7] Hilton's amended complaint
appears to have been filed to serve as a predicate for
intrusive discovery into ITT's affairs. Hilton's new claims, by
and large, are not ripe and should be dismissed. The ripeness
doctrine is derived from Article III's "case or controversy"
requirement, U.S. Const. art. III, ss. 2, cl. 1, and precludes
advisory opinions and the premature adjudication of claims.
Arizona v. Atchison Topeka and Santa Fe R.R., 656 F.2d 398, 402
(9th Cir. 1981); see also Thomas v. Union Carbide Agric. Prods.
Co., 473 U.S. 568, 580-81 (1985) (claim not ripe if it depends
on "'contingent future events that may not occur as
anticipated, or indeed may not occur at all'") (quoting 13A
Charles Wright, Arthur Miller & Edward Cooper, Federal Practice
and Procedure, ss. 3532 (1984)) (dicta); Kern River Gas
Transmission Co. v. Clark County, 757 F. Supp. 1110, 1114 (D.
Nev. 1990) (finding case ripe but noting that plaintiff was not
"merely trying to get an injunction against an eventuality that
- --------
[7] The amended complaint seeks equitable, declaratory and
monetary relief, including rescission of the FelCor contract
and any other contract ITT may enter into in the future for the
sale of any hotel or casino (Paragraph 69(i)), invalidation of
the FelCor change-in-control clause (Paragraph 69(j)), and
invalidation of any change-in-control provisions in any
contract ITT should enter into "in the future" (Paragraph
69(k)). Hilton also seeks an injunction "[r]equiring defendants
to conduct a fair and open auction of ITT" (Paragraph 69(e)).
Notably, however, Hilton never sought to enjoin the FelCor
transaction from its scheduled end of June closing, and FelCor
is not named as a defendant.
<PAGE>
will never arise"). Ripeness is a requisite of subject matter
jurisdiction, Atchison, 656 F.2d at 402, and therefore is
determined at the time of the filing of the complaint. E.g.,
Ripplinger v. Collins, 868 F.2d 1043, 1047 (9th Cir. 1989);
Morongo Band of Mission Indians v. California State Bd. of
Equalization, 858 F.2d 1376, 1380 (9th Cir. 1988).
In determining whether claims are ripe, a court must
consider "the fitness of the issues for judicial decision" and
"the hardship to the parties of withholding court
consideration". Pacific Gas & Elec. Co. v. State Energy
Resources Conservation & Dev. Comm'n, 461 U.S. 190, 201 (1983)
(quoting Abbott Labs. v. Gardner, 387 U.S. 136, 148-49 (1967));
see also Duval Ranching Co. v. Glickman, No. CV-N-95-38-ECR,
1997 U.S. Dist. LEXIS 7251, at *34 (D. Nev. March 13, 1997).
Courts may also consider the need to preserve judicial
resources for actual cases and controversies and to avoid
undermining the courts' authority by issuing improvident
rulings. See, e.g., Atchison, 656 F.2d at 402 (quoting Public
Service Comm'n v. Wycoff Co., 344 U.S. 237, 243-44 (1952)).
Unripe claims in takeover litigation are routinely
dismissed pursuant to Rule 12(b)(1). For example, in Wells
Fargo & Co. v. First Interstate Bancorp., Civ. A. Nos. 14696,
14623, 1996 WL 32169, at *8-9 (Del. Ch. Jan. 18, 1996), the
court dismissed as unripe several claims by a hostile bidder
that were "directed speculatively to future states of the
world." Accord Chrysogelos v. London, No. Civ. A. 11,910, 1992
Del. Ch. LEXIS 61, at *11 (1992) (holding that "without any
allegation that the
<PAGE>
corporation has entered or will enter into contracts binding
upon the corporation, a determination of the legal sufficiency
of this 'claim', which is not ripe for adjudication, would
amount to an impermissible advisory opinion"). See also Stroud
v. Milliken Enters., Inc., 552 A.2d 476, 481 (Del. 1989) (a
declaratory judgment should not be issued based on "future or
contingent" events); cf. Wilmac Corp. v. Bowen, 811 F.2d 809,
813 (3rd Cir. 1987) (reliance on a future state of the world is
not injury for ripeness purposes).
The face of Hilton's amended complaint reveals issue after
issue that is not fit for judicial consideration precisely
because each is based on possible future events supported only
by speculation and rumor. The gravamen of Hilton's amended
complaint is that Hilton has heard rumors that ITT might enter
into transactions either on terms that Hilton believes should
not be acceptable or that might represent a sale of all of
ITT's assets. Hilton does not allege that any such sales are
imminent. It does not allege that Hilton is being or has ever
been denied an opportunity to seek timely relief as to any ITT
transactions actually undertaken. Hilton is not seeking any
preliminary relief on the new claims. No hardship would result
from dismissing the speculative claims and waiting to see
whether any transactions are announced; if and when they are, a
claim consistent with the legal requirement of ripeness can be
filed.
Analyzing the legal issues raised by Hilton's amended
complaint with no facts but possible or rumored events would be
<PAGE>
unfair to the Court, as well as to ITT and its stockholders.
This Court recently held that "'inquiries concerning fiduciary
duties are inherently particularized and contextual'". Hilton
Hotels Corp. v. ITT Corp., 962 F. Supp. 1309, 1311 (D. Nev.
1997). Hilton's challenge of prospective transactions is asking
the Court to enjoin potential transactions and invalidate
possible future provisions before they are negotiated--before
there are particularized circumstances and before it is known
even what party seeks such provisions. Hilton's request is
improper and its adjudication is not feasible.
II. HILTON IS A HOSTILE WOULD-BE ACQUIROR WHOSE BREACH OF
FIDUCIARY DUTY CLAIMS SHOULD BE DISMISSED
Hilton's breach of fiduciary duty claims (Counts III, IV,
VI, VII) are derivative; indeed, Hilton expressly alleges
injury to "ITT's assets" (Am. Cpl. Paragraph 33) and to "ITT
and its shareholders" (id. Paragraph 34).[8] Since Hilton does
not satisfy the substantive criteria for maintaining a
derivative action on behalf of ITT's stockholders under Fed. R.
Civ. P. 23.1 and Hilton has not properly followed the
procedural requirements of that Rule, these counts should be
dismissed.
- --------
[8] Hilton avers ownership of ITT shares and that the "action is
brought . . . to redress a wrongful course of conduct by defendants
that is designed to [injure] ITT shareholders". (Am. Cpl. Paragraphs 1,
4-5.) Hilton brings these claims as a stockholder because a tender
offeror that is not a stockholder is owed no fiduciary duty by the
directors and therefore has no standing to bring state law claims
for breach of fiduciary duty or corporate waste. E.g., Crane Co.
v. Anaconda Co., 411 F. Supp. 1208, 1209 (S.D.N.Y. 1975).
<PAGE>
A. Hilton's Claims Are Derivative
Derivative actions empower an individual stockholder to
bring "suit to enforce a corporate cause of action against
officers, directors, and third parties". Ross v. Bernhard, 396
U.S. 531, 534 (1970); see also Nelson v. Sierra Constr. Corp.,
364 P.2d 402, 405 (Nev. 1961).[9] Under Nevada law[10], the
fiduciary duties of a director run to the corporation. NRS ss.
78.138 (1995) (mandating that directors and officers "shall
exercise their powers in good faith and with a view to the
interests of the corporation"). That statutory language makes
clear that a Nevada corporation's director's duties run to the
corporation, rather than directly to the stockholders.[11]
- --------
[9] By contrast, a "direct" or "individual" stockholder action
arises when the injury is suffered by particular stockholders,
not by the corporation or stockholders generally. 12B William
Fletcher, Cyclopedia of the Law of Private Corporations ss.
5911 (perm. ed. rev. vol. 1993).
[10] In diversity actions, state law governs the
characterization of an action as derivative or direct. Sax v.
World Wide Press, Inc., 809 F.2d 610, 613 (9th Cir. 1987).
[11] Numerous courts have held that, even absent such a
statute, breach of fiduciary duty claims are derivative. E.g.,
Friedman v. Mohasco Corp., 929 F.2d 77, 79 (2d Cir. 1991)
(breach of fiduciary obligations "could only be asserted
derivatively on behalf of the corporation"); Starbird v. Lane,
203 Cal. App. 2d 247, 254-55 (1962) (ultra vires acts by
directors give rise to derivative claims). Moreover, claims
that are rooted in the alleged diminution of stockholders'
stock value must be brought derivatively. See Eagle v. AT&T,
769 F.2d 541, 546-47 (9th Cir. 1985) ("Because shareholders do
not own the corporation's assets, the wrongful depletion of
corporate assets is an injury to the corporation and only an
indirect injury to the shareholders."), cert. denied, 475 U.S.
1084 (1986); O'Hare v. Marine Elec. Co., 229 Cal. App.2d 33, 36
(1964); Guenther v. Pacific Telecom, Inc., 123 F.R.D. 341,
348-49 (D. Or. 1988). In particular, claims about
<PAGE>
Thus, Hilton's breach of fiduciary duty claims are
derivative of ITT's right to press such a claim under Nevada
statutory law. And any action concerning breach of those duties
belongs to ITT -- not to an individual stockholder such as
Hilton. See Buchanan v. Henderson, 131 B.R. 859, 865 (D. Nev.
1990) ("The law is fairly well settled that a [cause] of action
for breach of fiduciary duty belongs to the corporation."),
rev'd on other grounds, 985 F.2d 1021 (9th Cir. 1993).[12]
A stockholder can only bring a direct claim against a
corporation and its board if it alleges "special" injury.[13]
Hilton
- --------
director-misconduct in the face of a tender offer are
derivative claims. O'Neill v. Church's Fried Chicken, Inc., 910
F.2d 263, 267 (5th Cir. 1990). See also Kahn v. Sprouse, 842 F.
Supp. 423, 427 (D. Or. 1993) ("Unocal is not grounds on which
to assert a direct action.").
[12] Such claims run against the directors, not the
corporation, though the corporation is properly included as a
nominal defendant. See Charles Wright, Arthur Miller & Mary
Kane, Federal Practice and Procedure ss. 1822 (1986)
(corporation on whose behalf a derivative action is maintained
is an indispensable party under Fed. R. Civ. P. 19(b)); KDT
Industries, Inc. v. Home Insurance Co., 603 F. Supp. 861, 863
n.4 (D. Mass. 1985) (corporation "nominal defendant" in
stockholder derivative suits). Presumably that is why Hilton
named ITT directors as defendants in the, on the other hand,
amended complaint.
[13] "[A]n action enforces a corporate right 'if the gravamen
of the complaint is injury to the corporation, or to the whole
body of its stock or property'"; a direct action, on the other
hand, involves an injury specific to the plaintiff as a
stockholder that is separate and distinct from that suffered by
the corporation or stockholders generally, such as a wrong
involving a stockholder agreement. Sax, 809 F.2d at 613-14
(quoting 12B William Fletcher, Cyclopedia of the Law of Private
Corporations ss. 5911 (perm. ed. rev. vol. 1984)); Schaffer v.
Universal Rundle Corp., 397 F.2d 893, 896 (5th Cir. 1968)
(applying Texas law); see Lewis v. Chiles, 719 F.2d 1044,
1048-49 (9th Cir. 1983).
<PAGE>
has not pleaded "special injury". Instead, Hilton has pleaded
injuries to ITT that affect all stockholders in common. For
example, Count III alleges that "ITT and its shareholders stand
to lose millions of dollars of value" because of the
change-in-control provisions in the FelCor contracts. (Am. Cpl.
Paragraph 45.)[14] Similarly, the requested broad injunctive
remedies intruding on prerogatives of ITT's corporate board
that are sought by Hilton would affect all ITT stockholders
equally.
B. These Derivative Claims Should Be Dismissed
Since Hilton's claims are derivative, its amended
complaint is subject to the requirements of Fed. R. Civ. P.
23.1. Sax, 809 F.2d at 613. Under that Rule, Hilton is not a
proper party to bring these derivative claims and has not
complied with the pleading requirements of the Rule. The claims
must therefore be dismissed.
1. Hilton Is Not a Proper Derivative Plaintiff
Fed. R. Civ. P. 23.1 provides in part that:
"The derivative action may not be maintained if it appears
that the plaintiff does not fairly and adequately
represent the interests of the shareholders or members
similarly situated in enforcing the right of the
corporation or association."
- --------
[14] Direct interference with the stockholder franchise, which
is not alleged in Counts III, IV, VI and VII for breach of
fiduciary duty, is deemed a form of special injury by some
courts. See, e.g., In re Tri-Star Pictures, Inc., Litig., 634
A.2d 319, 330 (Del. 1993); Moran v. Household Int'l, Inc., 490
A.2d 1059, 1070 (Del. Ch.), aff'd, 500 A.2d 1346 (Del. 1985);
Lipton v. News Int'l, PLC, 514 A.2d 1075, 1078 (Del. 1986).
Hilton does not allege that the change-in-control provisions
amount to a direct interference with the stockholder franchise.
<PAGE>
Since Hilton's interests are adverse to the interests of the
other ITT stockholders, Hilton is not an appropriate champion
for either ITT or its stockholders on these claims.
The Court of Appeals for the Ninth Circuit has stated that
in a derivative suit, the "shareholder's real interest [is] in
obtaining a recovery for the corporation which increases the
value of his holdings". Lewis, 719 F.2d at 1047. Hilton's real
interest here is to buy other stockholders' ITT stock at the
lowest possible price. It seeks, as it must, to lower the
acquisition value paid for the other ITT stockholders'
holdings.[15] Baron v. Strawbridge & Clothier, 646 F. Supp.
690, 695 (E.D. Pa. 1986) (tender offeror's interests are
"manifestly antagonistic" to those of other stockholders); Hall
v. Aliber, 614 F. Supp. 473, 476 (E.D. Mich. 1985).
2. Hilton Has Failed to Meet the Procedural Requirements
of Rule 23.1
Hilton has failed to plead its derivative claims in
conformity with the special pleading requirements of Fed. R.
Civ. P. 23.1: for example, Hilton has not verified its amended
complaint, alleged with particularity its efforts to make a
demand on the ITT Board, or pleaded excuse from making such a
demand, as expressly required
- --------
[15] The conflict between Hilton and the other ITT stockholders
is particularly apparent here because Hilton is seeking to
impose a two-step merger. Hilton wants to obtain control of ITT
in order to force the other owners of the remaining 49.9% of
ITT shares to surrender their ITT shares to Hilton in return
for Hilton stock in a stock-for-stock exchange of uncertain
value. The party pursuing that goal is not a proper derivative
plaintiff.
<PAGE>
by the Rule. Counts III, IV, VI and VII should be dismissed
pursuant to Federal Rule 41(b) because of these failures alone.
See Greenspun v. Del E. Webb Corp., 634 F.2d 1204, 1208-10 (9th
Cir. 1980) (affirming dismissal for failure to comply with Rule
23.1).
III. COUNTS III-V MUST BE DISMISSED FOR FAILURE TO STATE A
COGNIZABLE CLAIM
A. Hilton's Unocal and Revlon Counts Do Not State a Claim
Neither Unocal nor Revlon is the law of Nevada; under
Nevada law, otherwise lawful responses to hostile bids are
protected so long as they are undertaken in good faith and with
a view to the best interests of the corporation. See NRS ss.
78.138(1),(4).
Although under Delaware decisional law, a board of
directors' actions are subject to "heightened scrutiny" in
Unocal and Revlon situations[16], the same is not true under
Nevada law. The special
- --------
[16] Under Unocal, if a plaintiff is able to establish that a
Board of a Delaware corporation has taken "defensive measures .
. . in the context of a contest for control", the Board, as a
threshold matter, has the burden of showing "(1) that it 'had
reasonable grounds for believing that a danger to corporate
policy and effectiveness existed', and (2) 'that [its]
defensive response was reasonable in relation to the threat
posed'". In re Santa Fe Pacific Corp. Shareholder Litig., 669
A.2d 59, 71 (Del. 1995) (quoting Unitrin, Inc. v. American Gen.
Corp., 651 A.2d 1361, 1373 (Del. 1995)).
Under Revlon, if a Delaware corporation (1) "'initiates an
active bidding process seeking to sell itself or to effect a
business reorganization involving a clear break-up of the
company'"; (2) "'in response to a bidder's offer. . . abandons
its long-term strategy and seeks an alternative transaction
involving the break-up of the company'"; or (3) approves a
transaction resulting in a "'sale or change of control'", then
the Board must "'seek the transaction offering the best value
reasonably available to the stockholders'". Santa Fe, 669 A.2d
at 71 (internal
<PAGE>
and different duties imposed by Unocal and Revlon are Delaware
law exceptions to the general principle that "the business
judgment rule attaches ab initio and to survive a Rule 12(b)(6)
motion, a plaintiff must allege well-pleaded facts to overcome
the presumption." Santa Fe, 669 A.2d at 71 (citations omitted).
However, NRS ss. 78.120 grants a board of directors broad
powers and responsibilities:
"1. Subject only to such limitations as may be provided by
this chapter, or the articles of incorporation of the
corporation, the board of directors has full control over
the affairs of the corporation."
See also NRS ss. 78.115 ("The business of every corporation
must be managed by a board of directors . . ").[17]
As explained in the affidavit of Robert M. Sader,
previously submitted on February 12, 1997 in support ITT's
opposition to plaintiffs' motion for preliminary injunction,
NRS ss. 78.138 was enacted in 1991 to provide that (1) "good
faith" is the measure of a Board's performance of its duties to
the corporation; (2) a variety of interests may be considered
by the directors, "including the possibility that these
interests may be best served by the continued independence of
the corporation"; and (3) "[d]irectors may resist a change or
potential change-in-control of the
- --------
citations omitted).
[17] Hilton is trying to use its own unsolicited partial tender offer
to usurp a board's legitimate prerogatives in managing the
corporation. Application of Nevada law prevents that, however. As
this Court has held, "ITT . . . [is] permitted to do as [it]
deem[s] advisable in the marketplace with respect to [its]
investment and business decisions". Hilton, 962 F. Supp. at 1311-
12 (D. Nev. 1997).
<PAGE>
corporation if [they] determine that the change or potential
change is opposed to or not in the best interest of the
corporation". NRS Section 78.138(1),(3)&(4). In particular, as
Mr. Sader has testified:
"In considering A.B. 655, the Legislature reviewed, but by
enacting NRS 78.138(1) did not adopt, the approach taken
by some other jurisdictions in applying a heightened
standard of scrutiny to the actions taken by directors in
certain circumstances, such as in response to a proposed
acquisition of control of the corporation." (2/12/97 Sader
Aff. Paragraph 10.)[18]
In Nevada, unlike in Delaware, directors have a statutory right
to consider the interests of constituencies other than
stockholders in exercising their powers. NRS ss. 78.138(3).
Therefore, given Nevada's vastly different statutory scheme
concerning the duties of directors, Delaware's Revlon standard
is simply inapplicable in Nevada.[19]
- --------
[18] Accord Stepak v. Schey, 553 N.E.2d 1072, 1078 (Ohio 1990)
("[T]he directors are not held to a duty to the shareholders to
obtain, like an auctioneer, the highest price possible for
their shares of the corporation. The law of the state of
Delaware to that effect as pronounced in Revlon is not
applicable in Ohio." (citation omitted)).
[19] Moreover, Hilton appears to be attempting to proceed under
the Revlon scenario that is triggered when "in response to a
bidder's offer, a Delaware target abandons its long-term
strategy and seeks an alternative transaction involving the
break-up of the company". Santa Fe, 669 A.2d at 71. Sifting
through the hyperbole and allusions to possible future events,
the only alternative transaction identified in Count IV is the
FelCor transaction, which satisfies none of the Revlon
criteria. Even if Revlon were applicable law, ITT's sale of
five hotels does not "involv[e] the break-up of the company"
under Revlon. See Santa Fe, 669 A.2d at 71 (dismissing Revlon
claim); Tomczak v. Morton Thiokol, Inc., Civ. A. No. 786, 1990
WL 42607, at *15 (Del. Ch. Apr. 5, 1990) (sale of one of four
corporate divisions does not trigger Revlon duties); see also
Bragger v. Budacz, Civ. A. No. 13376 1994 Del. Ch. LEXIS 202,
at *22 (Del. Ch. Dec. 7, 1994) (claim dismissed when "[t]he
amended complaint raise[d] a theoretically possible claim but
[did] not allege facts that fit that theory").
<PAGE>
B. Count V Fails to State a Claim
In Nevada, the sale of corporate assets is governed by NRS
Section 78.565, which states that a corporation may "sell,
lease or exchange all of its property and assets" when
authorized by a majority of its stockholders (emphasis added).
The statutory provision for a stockholder vote does not address
a sale of less than all of a corporation's assets. See Umbriac
v. Kaiser, 467 F. Supp. 548, 553 (D. Nev. 1979).
Count V, however, seeks relief on the grounds that Nevada
law prohibits ITT from engaging in the "sale of all or
substantially all of its property and assets without the
approval of the holders of a majority of its voting stock".
(Am. Cpl. Paragraph 55.) This is an incorrect statement of
Nevada law; and Hilton has not alleged facts showing any threat
that even "substantially all" of ITT's assets are being sold.
Therefore, this claim should be dismissed.
IV. THE NEW COUNTS SHOULD BE DISMISSED FOR FAILURE TO JOIN
FELCOR AS A PARTY
Insofar as it relates to actual events rather than
hypothetical future possibilities, the amended complaint
focuses primarily on the FelCor transaction. (See Am. Cpl.
Paragraphs 25-27, 30-34, 44-46, 49-51, 55, 59, 62, 69(i)-(j).)
Hilton, however, has failed to name FelCor as a defendant.
Under Rule 19(a), a party is "necessary" if, in the
party's absence, "complete relief cannot be accorded" or, inter
alia, the absent party has an "interest relating to the subject
of the action and is so situated that the disposition of the
action in the
<PAGE>
person's absence may (i) as a practical matter impair or impede
the person's ability to protect that interest". Fed. R. Civ. P.
19(a)(1)-(2).
Where, as here, a plaintiff seeks rescission of a contract
(Am. Cpl. Paragraph 69(i)), and invalidation of certain
provisions of a contract (id. Paragraph 69(j)), joinder of the
absent party is necessary for both of the above reasons.[20] As
Hilton knows, FelCor requested the change-in-control provision.
Felcor has a clear interest in the management contract
generally and the change-in-control provision specifically.
FelCor, as a non-party, is not in a position to safeguard its
interests and respond to Hilton's false allegations. (See,
e.g., Am Cpl. Paragraph 32 (claiming that "[t]he change of
control penalty provisions do not serve any legitimate purpose
of FelCor").)
Inasmuch as Hilton has neither joined FelCor as a
defendant nor pleaded any "reasons why [it is] not joined" as
required by
- --------
[20] See National Licorice Co. v. NLRB, 309 U.S. 350, 363
(1940) ("Ordinarily where the rights involved in litigation
arise upon a contract, courts refuse to adjudicate the rights
of some of the parties to the contract if the others are not
before it. Such a judgment or decree would be futile if
rendered, since the contract rights asserted by those present
in the litigation could neither be defined, aided nor enforced
by a decree which did not bind those not present." (internal
citations omitted)); Lomayaktewa v. Hathaway, 520 F.2d 1324,
1325 (9th Cir. 1975), cert. denied, 425 U.S. 903 (1976). Courts
in this Circuit have applied these principles consistently in
takeover litigation. For example, in SEC v. Carter Hawley Hale
Stores, Inc., 587 F. Supp. 1248, 1250 (C.D. Cal. 1984), aff'd,
760 F.2d 945 (1985), the target issued stock to a third party,
General Cinema, allegedly as a defensive measure. The court
ruled "that it would entertain no further request for equitable
relief pendente lite which would affect General Cinema's rights
with respect to its [stock] unless it were joined as a
defendant, Fed. R. Civ. P. 19(a)". Id. at 1251.
<PAGE>
Rule 19(c), Counts III, IV, VI, and VII should be dismissed.
V. IN THE ALTERNATIVE, PARTIAL SUMMARY JUDGMENT SHOULD BE
GRANTED
If somehow the alleged facts do state a claim, the actual
facts dictate that summary judgment be entered for ITT because
"there is no genuine issue as to any material fact and [ITT] is
entitled to a judgment as a matter of law". Fed. R. Civ. P.
56(c); Abromson v. American Pacific Corp., Nos. 96-15250,
96-15316, 1997 WL 297723, at *3 (9th Cir. June 5, 1997) (citing
Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986); Barnes v.
Arden Mayfair, Inc., 759 F.2d 676, 680 (9th Cir. 1985).
Hilton complains about neither the price of the FelCor
hotel sale nor the fee structure of the FelCor management
contract. Rather, Hilton's new claims are fundamentally based
on the assertion that the FelCor management contract and
certain other unspecified management contracts entered into by
ITT/Sheraton have change-of-control provisions; it is those
elements of the transactions that Hilton claims represent
breaches of defendants' fiduciary duties. (See Am. Cpl.
Paragraphs 25-34, 44, 49, 54-56, 59, 61-62.)
Hilton's conclusory assertions about the FelCor
transaction in the amended complaint are inaccurate, as Hilton
knew before it amended. For example, Hilton asserts that
FelCor's "right to cancel is a pure entrenchment device
designed to maintain ITT's incumbent board and management in
office" (id. Paragraph 3), but the evidence is that FelCor
requested this option to terminate (Feldman
<PAGE>
Aff. Paragraphs 4-6); that this provision was included as "an
attempt to deter Hilton or any other bidder from acquiring
control of ITT" (Am. Cpl. Paragraph 25), but FelCor demanded
this provision because it feared the Hilton takeover and the
prospective management of the Sheraton brand by HFS (Feldman
Aff. Paragraph 5); that "the change of control penalty
provisions do not serve any legitimate purpose of FelCor" (Am.
Cpl. Paragraph 32), but as FelCor's Chairman has stated, he
"insisted" on the change of control provision because it was
necessary in order to ensure that FelCor would retain the
ability to determine who managed its properties (Feldman Aff.
Paragraph 5); that the "change of control penalty provisions in
ITT's proposed management agreement with FelCor . . . are a
'poison pill' designed to destroy the value of ITT to Hilton
. . ., [and] a pure entrenchment device . . . designed to serve
the entirely illegitimate purpose of deterring Hilton" (Am.
Cpl. Paragraph 33), but these provisions actually preserve the
value of ITT and only provide FelCor with an option to
terminate if Hilton chooses to persist with its plans to
entrust the Sheraton name to HFS (see Feldman Aff. Paragraphs
5,7,9).
Thus, the indisputable facts indicate that Hilton cannot
show any genuine issue as to any material fact of the
following: (a) inclusions of change-of-control provisions were
responses to demands from third-parties reacting to Hilton's
actions; (b) Hilton itself does not view the sale of hotels to
FelCor as material or threatening; and (c) Felcor insisted on a
change-of-control provision in its long term management
agreements for its own
<PAGE>
legitimate business reasons. (Feldman Aff. Paragraphs 4-6.)
Since these essential facts are not genuinely in dispute and
are flatly inconsistent with plaintiffs' claims, summary
judgment on these claims is appropriate.
Hilton cannot maintain its breach of fiduciary duty claims
relating to the FelCor transaction and the unspecified
management contracts in the face of these indisputable facts.
However, these are the only actual, as opposed to possible,
actions by ITT that underlie Hilton's new claims. Accordingly,
summary judgment should be granted for ITT.
<PAGE>
Conclusion
For the foregoing reasons, the Court should dismiss Counts
III-VII of Hilton's First Amended and Supplemental Complaint
or, in the alternative, grant partial summary judgment.
DATED this 2nd day of July, 1997.
Respectfully submitted,
KUMMER KAEMPFER BONNER & RENSHAW
By /s/ Von S. Heinz
----------------------------
THOMAS F. KUMMER
VON S. HEINZ
Seventh Floor
3800 Howard Hughes Parkway
Las Vegas, Nevada 89109
Attorney for Defendant/
Counterclaimant
ITT CORPORATION
<PAGE>
CERTIFICATE OF SERVICE
Pursuant to Fed. R. Civ. P. 5(b), I hereby certify that
service of the foregoing MOTION OF ITT CORPORATION TO DISMISS
COUNTS III-VII OF THE FIRST AMENDED AND SUPPLEMENTAL COMPLAINT
OR, IN THE ALTERNATIVE, FOR PARTIAL SUMMARY JUDGMENT was made
this date by delivering by hand a true copy of the same to the
following:
Steve Morris
Kristina Pickering
SCHRECK MORRIS
1200 Bank of America Plaza
300 South Fourth Street
Las Vegas, NV 89101
and by delivering by facsimile this date and by overnight mail
on July 3, 1997 a true copy of the same to the following:
Bernard W. Nussbaum
Eric M. Roth
Marc Wolinsky
Scott L. Black
WACHTELL, LIPTON, ROSEN & KATZ
51 West 52nd Street
New York, NY 10019
DATED this 2nd day of July, 1997.
/s/ Judith A. Vienneau
------------------------------
An Employee of Kummer Kaempfer
Bonner & Renshaw
