<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-9
(AMENDMENT NO. 6)
SOLICITATION/RECOMMENDATION STATEMENT
Pursuant to Section 14(d)(4)
of the Securities Exchange Act of 1934
ITT CORPORATION
(Name of Subject Company)
ITT CORPORATION
(Name of Person(s) Filing Statement)
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)
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
<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 March 10, 1997, the Honorable Philip M. Pro issued an order (the
"Federal Consolidation Order") consolidating the purported class actions
initiated with the filing of the Collins Complaint, the Taub Complaint, the
Consolidated Complaint, the Kanarek Complaint and the Halebian Complaint under
the caption, In re ITT Corporation Securities Litigation, Master File No.
CV-S-97-00104-PMP (RLH). A copy of the Federal Consolidation Order is filed
as Exhibit 39 hereto and is incorporated herein by reference.
On March 11, 1997, the Company filed (i) a Memorandum in Opposition to
Latham & Watkins' Application for a Special Appearance (the "Memorandum in
Opposition to Special Appearance") and (ii) a Reply Memorandum in Support of its
Motion for a Permanent (or Preliminary) Injunction Requiring Hilton to Discharge
Latham & Watkins as Counsel
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(the "ITT Counsel Motion Reply Memorandum"). Copies of the Memorandum in
Opposition to Special Appearance and the ITT Counsel Motion Reply Memorandum are
filed as Exhibits 40 and 41 hereto, respectively, and are incorporated herein by
reference.
On March 12, 1997, the Honorable Philip M. Pro issued an order (i)
denying the Counsel Motion; (ii) granting the Latham Special Appearance Motion
and (iii) denying the Latham Motion to Strike Fischkin Affidavit. A copy of the
order is filed as Exhibit 42 hereto and is incorporated herein by reference.
On March 13, 1997, the Company filed a Memorandum in Opposition to the
Hilton Annual Meeting Motion (the "ITT Memorandum in Opposition to the Hilton
Annual Meeting Motion"). A copy of the Memorandum in Opposition to the Hilton
Annual Meeting Motion is filed as Exhibit 43 hereto and is incorporated herein
by reference.
ITEM 9. EXHIBITS.
The response to Item 9 is hereby amended by adding the following new
exhibits:
39. Order of the Honorable Philip M. Pro dated March 10, 1997.
40. ITT Memorandum in Opposition to Latham & Watkins' Application for a
Special Appearance.
41. Reply Memorandum of ITT in Support of its Motion for a Permanent (or
Preliminary) Injunction Requiring Hilton to Discharge Latham & Watkins
as Counsel.
42. Order of the Honorable Philip M. Pro dated March 12, 1997.
2
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43. ITT's Memorandum in Opposition to Hilton's Motion for a Preliminary
Injunction Requiring ITT to Conduct its Annual Meeting in May 1997.
3
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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 March 18, 1997
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EXHIBIT INDEX
Exhibit Description Page No.
(39) Order of the Honorable Philip M. Pro dated March 10,
1997...................................................
(40) ITT Memorandum in Opposition to Latham & Watkins'
Application for a Special Appearance...................
(41) Reply Memorandum of ITT in Support of its Motion for a
Permanent (or Preliminary) Injunction Requiring Hilton
to Discharge Latham & Watkins as Counsel...............
(42) Order of the Honorable Philip M. Pro dated March 12,
1997 ..................................................
(43) ITT's Memorandum in Opposition to Hilton's Motion for a
Preliminary Injunction Requiring ITT to Conduct its
Annual Meeting in May 1997.............................
<PAGE>
Exhibit 99.39
UNITED STATES DISTRICT COURT
DISTRICT OF NEVADA
* * *
MARJORIE COLLINS, )
)
Plaintiff, ) CV-S-97-104-PMP (RLH)
)
v. )
) O R D E R
BETTY B. ANDERSON, RAND V. )
ARASKOG, NOLAN D. ARCHIBALD, )
ROBERT A. BOWMAN, ROBERT A. )
BURNETT, PAUL G. KIRK, JR., )
EDWARD C. MEYER, BENJAMIN F. )
PAYTON, VIN WEBER, MARGITA E. )
WHITE, KENDRICK R. WILSON III, )
and ITT CORP., )
)
)
Defendants.
________________________________
Before the Court for consideration is the Stipulation and Order Re
Case Management, received by the Clerk of Court on March 4, 1997. The Court
finds the Stipulation and Proposed Order to be entirely acceptable with the
exception of Part V, ADMISSION OF ATTORNEYS AND APPEARANCES. Part V of the
Stipulation provides that any attorney appearing in this case who is not a
member of the bar of this Court is relieved from
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compliance with Local Rule 1A 10-2, ADMISSION TO PRACTICE IN A PARTICULAR CASE.
The Court is not inclined to dispense with compliance with Local Rule 1A 10-2 in
this or any other case.
IT IS THEREFORE ORDERED that the Stipulation and Order Re Case
Management shall be filed with the Clerk of Court and is hereby approved by this
Court with the exception that Part V entitled ADMISSION OF ATTORNEYS AND
APPEARANCES is modified to require compliance with Local Rule 1A 10-2, ADMISSION
TO PRACTICE IN A PARTICULAR CASE.
DATED: March 10, 1997
/s/ Philip M. Pro
---------------------------------
PHILIP M. PRO
United States District Judge
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ALBRIGHT, STODDARD, WARNICK & ALBRIGHT
G. MARK ALBRIGHT
Nevada Bar No. 001394
WILLIAM H. STODDARD, ESQ.
Nevada Bar No. 001477
Quail Park I, Suite D-4
801 South Rancho Drive
Las Vegas, Nevada 89106
(702) 384-7111
Liaison Counsel for Plaintiffs
[Additional counsel appear on signature page.]
UNITED STATES DISTRICT COURT
DISTRICT OF NEVADA
- -----------------------------------
x
MARJORIE COLLINS, : CV-S-97-00104-PMP (RLH)
:
Plaintiff, :
:
vs. :
:
BETTE B. ANDERSON, RAND V. :
ARASKOG, NOLAN D. ARCHIBALD, :
ROBERT A. BOWMAN, ROBERT A. :
BURNETT, PAUL G. KIRK, JR., :
EDWARD C. MEYER, BENJAMIN F. :
PAYTON, VIN WEBER, MARGITA E. :
WHITE, KENDRICK R. WILSON III and :
ITT CORP., :
:
Defendants. x
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- -----------------------------------
STEFEAN TAUB and JOHN A. GANDL, on : CV-S-97-00106-PMP (RLH)
behalf of themselves and all :
others similarly situated, :
:
Plaintiffs, :
:
vs. :
:
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, :
MARGITA E. WHITE, KENDRICK R. :
WILSON III and ITT CORP., :
:
x
Defendants. :
- ------------------------------------
:
JOAN COHEN, ADOLPH FEURERSTEIN, : CV-S-97-00155-PMP (RLH)
DAVID L. FREEMAN, trustee F/B/O :
WOODTECH SALES & MARKETING INC., :
EMPLOYEES PROFIT SHARING TRUST, :
ABRAHAM KOSTICK, SHARON SIEGEL, :
JULES BERNSTEIN, SYLVIA PIVEN, :
DONNIE K. MARKS, DR. SAMUEL :
COHEN, BELLE COHEN, KENNETH :
STEINER, ERNEST HACK and ROBERT :
HUNTLEY, on behalf of themselves :
and all others similarly situated, :
:
Plaintiffs, :
:
vs. :
:
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, :
MARGITA E. WHITE, KENDRICK R. :
WILSON III and ITT CORPORATION, :
:
Defendants. :
x
- ------------------------------------
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<PAGE>
- -----------------------------------:
RHODA KANAREK, on behalf of herself: CV-S-97-00166-PMP (RLH)
and all others similarly situated, :
:
Plaintiff, :
:
vs. :
:
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, :
MARGITA E. WHITE, KENDRICK R. :
WILSON III and ITT CORPORATION. :
x
Defendants.
- ------------------------------------
:
JOHN HALEBIAN, on behalf of himself: CV-S-97-00198-PMP (RLH)
and all others similarly situated, :
:
Plaintiff, :
:
vs. :
:
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, :
MARGITA E. WHITE, KENDRICK R. :
WILSON III and ITT CORPORATION, :
x
Defendants.
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STIPULATION AND ORDER RE: CASE MANAGEMENT
It appearing that five actions, Collins v. Anderson, et al.,
CV-S-97-00104-PMP (RLH), Taub et al. v. Araskog, et al., CV-S-97-00106-HDM
(LRL), Cohen, et al. v. Araskog, et al., , CV-S-97-00155-PMP (RLH),
Kanarek v. Araskog, et al., CV-S-97-00166-PMP (RLH), and Halebian
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v. Araskog, et al., CV-S-97-00198-PMP (RLH) have been commenced in this Court
involving the same subject matter and common questions of law and fact, and that
the administration of justice would be best served by consolidation of the
actions,
IT IS HEREBY ORDERED, UPON CONSENT OF THE PARTIES
The above-captioned actions shall be consolidated pursuant to Fed. R.
Civ. P. 42(a) for all purposes (the "Consolidated Actions").
I. FILING AND DOCKETING
The Clerk of the Court shall file all papers under the caption, In re
ITT Corporation Securities Litigation, Master File CV-S-97-00104-PMP (RLH) and
in such additional files, if any, to which their caption specifically refers.
Counsel are responsible for providing sufficient copies to permit the Clerk to
comply with this paragraph. All papers previously filed and served to date in
any of the cases consolidated herein are hereby deemed and adopted as part of
the record in the Consolidated Actions unless and to the extent otherwise
provided for herein.
II. APPLICATION OF THIS ORDER TO
SUBSEQUENTLY FILED OR TRANSFERRED CASES
Any action subsequently filed in or transferred to this Court, that
arises out of or relates to the same facts as alleged, or involves claims
similar to those alleged in the Consolidated Actions, shall be consolidated
herewith for all purposes, including pretrial proceedings and trial, and shall
be subject to the provisions of this Order deemed to be one of the Consolidated
Actions. Upon the filing of or transfer to this Court of such an action, the
Clerk of the Court shall place a copy of this Order in the separate file for
such action and shall mail a copy of this Order to all counsel of record in the
newly filed or transferred action. A party to the subsequently filed or
transferred action may object to the consolidation of such action or to any
other provision of this Order within fourteen
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(14) days after the date upon which a copy of this Order is mailed to counsel
for such party, by filing with this Court an application for relief from this
Order or any provision hereof. Counsel for plaintiffs and defendants in the
Consolidated Action shall cooperate in calling to the attention of the Clerk of
the Court any such newly filed or transferred cases.
III. CAPTION OF CASES
A. Every document filed in the Consolidated Actions, including any action
consolidated herewith, shall have the following caption:
UNITED STATES DISTRICT COURT
DISTRICT OF NEVADA
IN RE ITT CORPORATION ) Master File No.
SECURITIES LITIGATION ) CV-S-97-00104-PMP (RLH)
_____________________________)
B. Documents that relate to fewer than all of the Consolidated Actions
shall also list in their caption the action or actions to which they relate.
IV. ORGANIZATION OF PLAINTIFFS' COUNSEL
A. The organizational structure of plaintiffs' counsel established under
paragraph B hereof shall apply to all plaintiffs' counsel in the Consolidated
Actions.
B. The law firms of Milberg Weiss Bershad Hynes & Lerach LLP, Abbey,
Gardy & Squitieri, LLP, Wolf Haldenstein Adler Freeman & Herz LLP, and Wolf
Popper LLP shall serve as Plaintiffs' Co-Lead Counsel and the firm of Albright,
Stoddard, Warnick & Albright shall serve as Plaintiffs' Liaison Counsel in the
Consolidated Actions. The attorneys of record for all plaintiffs in the
Consolidated Actions shall constitute Plaintiffs' Committee of the Whole.
Plaintiffs' Liaison and Co-Lead Counsel shall be available and responsible for
communications to and from the Court, and
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<PAGE>
shall be responsible for the dissemination of notices and orders of the Court.
Plaintiffs' Co-Lead Counsel shall be responsible for coordinating and organizing
plaintiffs' counsel in the conduct of this litigation and, in particular shall
have the following responsibilities:
1. To brief and argue motions and file opposing briefs in
proceedings initiated by other parties;
2. To initiate and conduct discovery;
3. To act as spokesperson at court conferences or hearings;
4. To consult with and call meetings of plaintiffs' counsel when
they deem it appropriate;
5. To make all work assignments in such a manner as to conduct this
litigation in an orderly and efficient manner and to avoid unnecessary
duplication and unproductive efforts;
6. To conduct pre-trial, trial and post-trial proceedings;
7. To consult with and employ experts;
8. To negotiate with and enter into agreements with defendants'
counsel with respect to settlement and other matters;
9. To perform such other duties as they deem necessary, or as may be
expressly authorized by further Order of the Court.
C. No motion, application, or request for discovery shall be served or
filed, or other pretrial proceedings initiated, on behalf of plaintiffs, except
through Plaintiffs' Co-Lead Counsel. Such motions, applications or requests for
discovery shall be made on behalf of all plaintiffs jointly. Plaintiffs shall
serve only joint and consolidated sets of papers. Service of all matters,
whether required to be both filed and served or served only as required by L.R.
26-8, on all counsel for
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<PAGE>
defendants shall be good and sufficient if made by hand delivery, facsimile
transmission, or overnight delivery.
D. All notices, proposed orders, pleadings, motions, discovery, and
memoranda shall be served upon plaintiffs by service upon Plaintiffs' Co-Lead
Counsel and Liaison Counsel.
E. Plaintiffs' Co-Lead Counsel and Liaison Counsel are authorized to
receive orders, notices, correspondence and telephone calls from the Court and
the Clerk of the Court on behalf of all the plaintiffs.
V. ADMISSION OF ATTORNEYS AND APPEARANCES
Each attorney not a member of the bar of this Court, who is a member
in good standing of the bar of any federal or state court, and is acting as
counsel for any party herein, shall be deemed admitted pro hac vice to practice
before this Court in connection with these proceedings.
VI. CONSOLIDATED CLASS ACTION COMPLAINT
A. Plaintiffs shall serve upon defendants a single, consolidated, class
action complaint (the "Consolidated Complaint"). The Consolidated Complaint
shall be filed no later than twenty-one (21) days from the date of entry of this
Order. The Consolidated Complaint shall supersede all existing complaints in
the actions being consolidated by this Order.
B. No defendant is required to answer, move or otherwise respond to any
of the initial complaints filed in these Consolidated Actions. Each defendant
shall answer, move or otherwise respond with respect to the Consolidated
Complaint no later than thirty (30) days from the date of service of the
Consolidated Complaint.
C. Service of the Consolidated Complaint on defendants who have been
served in any of the individual actions shall be sufficient if served upon their
attorneys of record in such actions.
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VII. COORDINATION OF DISCOVERY AND MOTIONS
A. Discovery in this action shall be coordinated to the extent reasonably
possible with discovery in the action captioned Hilton Hotels Corporation and
HLT Corporation v. ITT Corporation, CV-S-97-095-PMP (RLH) (the "Hilton action").
All discovery obtained in the Hilton action shall be applicable to the
Consolidated Actions as if obtained in the Consolidated Actions. The parties
will agree to an appropriate protective order prior to discovery.
B. The motion for preliminary injunction currently pending in Marjorie
Collins v. Bette B. Anderson, et al., CV-S-97-00104-PMP (RLH) shall be deemed
made on behalf of all the plaintiffs in the Consolidated Actions and shall be
made a part of the record for the Consolidated Actions.
IT IS SO ORDERED:
-----------------------------------
United States District Court Judge
DATED: ________________, 1997
Consented to:
ALBRIGHT, STODDARD, WARNICK KUMMER KAEMPFER BONNER &
& ALBRIGHT RENSHAW
By: /s/ G. Mark Albright By: /s/ Von S. Heinz
------------------------- -----------------------------------
G. MARK ALBRIGHT, ESQ. THOMAS F. KUMMER
Nevada Bar No. 001394 Nevada Bar No.
WILLIAM H. STODDARD, ESQ. VON S. HEINZ
Nevada Bar No. 001477 Nevada Bar No. 859
Quail Park I, Suite D-4 3800 Howard Hughes Parkway
801 South Rancho Drive Las Vegas, NV 89109
Las Vegas, NV 89106 Tel: (702) 792-7000
Tel: (702) 384-7111 Fax: (702) 796-7181
Fax: (702) 384-0605
PLAINTIFFS' LIAISON COUNSEL
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<PAGE>
- and -
ABBEY, GARDY & SQUITIERI, LLP CRAVATH, SWAINE & MOORE
By: /s/ Mark C. Gardy By: /s/ Rory O. Millson
------------------------- -------------------------
ARTHUR N. ABBEY, ESQ. RORY O. MILLSON, ESQ.
MARK C. GARDY, ESQ. 825 Eighth Avenue
212 East 39th Street New York, NY 10019
New York, NY 10016 (212) 474-1000
(212) 889-3700
COUNSEL FOR DEFENDANTS
MILBERG WEISS BERSHAD HYNES
& LERACH LLP
By: /s/ Robert Wallner
--------------------------
DAVID J. BERSHAD, ESQ.
ROBERT WALLNER, ESQ.
One Pennsylvania Plaza
New York, NY 10119
(212) 594-5300
WOLF HALDENSTEIN ADLER FREEMAN
& HERZ LLP
By: /s/ Jeffrey G. Smith/WAS
--------------------------
JEFFREY G. SMITH, ESQ
NEIL L. ZOLA, ESQ.
270 Madison Avenue
New York, NY 10016
(212) 545-4600
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WOLF POPPER LLP
By: /s/ Wallace A. Showman
--------------------------
STEPHEN D. OESTREICH, ESQ.
WALLACE A. SHOWMAN, ESQ.
845 Third Avenue
New York, NY 10022
(212) 759-4600
PLAINTIFFS' CO-LEAD COUNSEL
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BERNSTEIN LIEBHARD & LIFSHITZ
STANLEY BERNSTEIN, ESQ.
274 Madison Avenue
New York, NY 10016
(212) 799-1414
CHIMICLES, JACOBSON & TIKELLIS
PAMELA TIKELLIS, ESQ.
One Rodney Square
Wilmington, DE 19899
(302) 656-2500
GARWIN BRONZAFT GERSTEIN
& FISHER L.L.P.
BERTRAM BRONZAFT, ESQ.
1501 Broadway, Room 1416
New York, NY 10036
(212) 398-0055
GOODKIND, LABATON, RUDOFF
& SUCHAROW LLP
LAWRENCE SUCHAROW, ESQ.
100 Park Avenue
New York, NY 10017-5563
(212) 907-0700
HARDESTY& BADER, LTD.
JAMES W. HARDESTY, ESQ.
245 East Liberty Street
Third Floor
Reno, NV 89501-2220
(702) 322-5000
LAW FIRM OF HARVEY GREENFIELD
HARVEY GREENFIELD, ESQ.
10 East 40th Street
New York, NY 10016
(212) 679-0600
LAW OFFICES OF BERNARD M. GROSS
DEBORAH R. GROSS, ESQ.
1500 Walnut Street
Philadelphia, PA 19102
(215) 561-3600
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LAVELLE - STUBBERUD & ASSOCIATES
LAURA STUBBERUD, ESQ.
700 South Third Street
Las Vegas, NV 89101
(702) 382-6711
MALINA & WOLSON
BERNARD MALINA, ESQ.
60 East 42nd Street
New York, NY 10016
(212) 986-7410
LAW OFFICES OF KLARI NEUWELT
KLARI NEUWELT, ESQ.
950 Third Avenue, 8th Floor
New York, NY 10022
(212) 593-8800
LAW OFFICES OF CHARLES J. PIVEN
CHARLES J. PIVEN, ESQ.
The Legg Mason Tower
111 S. Calvert Street
Baltimore, MD 21202
(401) 332-0300
RALEIGH, HUNT & MCGARRY, P.C.
302 E. Carson Avenue, Suite #1102
Las Vegas, NV 89101
(702) 386-4842
LAW OFFICES OF LAWRENCE G. SOICHER, ESQ.
LAWRENCE G. SOICHER, ESQ.
300 Park Avenue
20th Floor
New York, NY 10022
(212) 684-6442
STARR & HOLMAN LLP
ZACHARY ALAN STARR, ESQ.
10 East 40th Street
New York, NY 10016
(212) 980-7000
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STULL, STULL & BRODY
JULES BRODY, ESQ.
MARK LEVINE, ESQ.
6 East 45th Street
New York, NY 10017
(212) 687-7230
WECHSLER HARWOOD HALEBIAN
& FEFFER LLP
STUART D. WECHSLER, ESQ.
JEFFREY M. HABER, ESQ.
805 Third Avenue
New York, NY 10022
(212) 935-7400
LAW OFFICES OF ALFRED G. YATES, JR.
ALFRED G. YATES, JR., ESQ.
519 Allegheny Building, Suite 519
429 Forbes Avenue
Pittsburgh, PA 15219
(412) 391-5164
LAW OFFICES OF JAMES V. BASHIAN, P.C.
JAMES V. BASHIAN, ESQ.
500 Fifth Avenue, Suite 2700
New York, NY 10110
(212) 921-4110
COUNSEL FOR PLAINTIFFS
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<PAGE>
Exhibit 99.40
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, ) Case No. CV-S-97-95-PMP(RLH)
)
Plaintiffs, )
vs. )
)
ITT CORPORATION, )
)
Defendant. )
_______________________________________
)
ITT CORPORATION, )
)
Defendant and )
Counterclaimant, )
)
vs. )
)
HILTON HOTELS CORPORATION and )
HLT CORPORATION, )
)
Plaintiffs and )
Counterdefendants. )
_______________________________________)
ITT CORPORATION'S MEMORANDUM IN OPPOSITION TO LATHAM & WATKINS'
APPLICATION FOR SPECIAL APPEARANCE
Defendant/counterclaimant ITT Corporation ("ITT") has moved for an order
requiring plaintiffs and counterdefendants Hilton Hotels Corporation and HLT
Corporation (collectively, "Hilton") to dismiss Latham & Watkins ("Latham") as
counsel in connection with Hilton's hostile attempt to acquire ITT. In
opposition to that motion, Latham -- a self-proclaimed non-party -- has filed
voluminous papers in opposition to ITT's motion against Hilton.
<PAGE>
2
From Latham's submissions, it is clear that Latham is seeking affirmative
relief from this Court--Latham not only moves to strike the Affidavit of
Theodore J. Fischkin submitted by ITT but also requests the entry of a proposed
order denying ITT's motion. Despite seeking affirmative relief from this Court,
Latham has filed an application for special appearance, apparently for the
purpose of avoiding a voluntary submission to this Court's jurisdiction.
Latham's application is plainly procedurally improper and should be denied.
Latham should be ordered either to withdraw its papers or to file a motion
for leave to intervene with an accompanying pleading in intervention pursuant to
Rule 24 of the Federal Rules of Civil Procedure. Only by voluntarily submitting
itself to the jurisdiction of this Court may Latham's papers and requests for
relief be considered.1/
MEMORANDUM OF POINTS AND AUTHORITIES
ARGUMENT
I. LATHAM'S APPLICATION TO MAKE A SPECIAL APPEARANCE IS PROCEDURALLY IMPROPER
The "special appearance" is a device, still utilized in some state courts,
by which one may appear before a court for the limited purpose of challenging
the court's personal jurisdiction or the adequacy of process. See, e.g., Robert
C. Casad, 1 Jurisdiction in Civil Actions Section 3.01[5][a], at 3-43-55 (2d ed.
1991).2/ The nature of Latham's submissions and the relief Latham seeks make
plain that Latham is not seeking to participate in this action for the limited
purpose of challenging the Court's jurisdiction. Rather, Latham wishes to
participate in the merits of this action without submitting itself to this
Court's jurisdiction. Latham simply cannot have it both ways: by arguing the
merits, Latham has waived any future challenge to
_____________
1As ITT discusses in its Reply Memorandum on the merits, this Court has the
power to grant ITT's request for relief against Hilton regardless of whether
Latham files a motion for leave to intervene.
2The "special appearance" has been abolished in federal practice. See,
e.g., Dragor Shipping Corp. v. Union Tank Car Co., 378 F.2d 241, 243 n.2 (9th
Cir. 1967); Jackson v. Continental Trailways, Inc., 65 F.R.D. 451, 455 (D. Nev.
1974).
<PAGE>
3
this court's jurisdiction. See, e.g., Jackson, 65 F.R.D. at 455 (if a party
first proceeds on the merits, it cannot afterwards challenge court's
jurisdiction); Inland Credit Corp. v. M/T Bow Egret, 552 F.2d 1148, 1152 (5th
Cir. 1977), quoting Adam v. Saenger, 303 U.S. 59, 67-68 (1938) (appellant, "by
his voluntary act in demanding justice", "submitted himself to the jurisdiction
of the court").
Latham's application for a special appearance must therefore be denied.
II. LATHAM SHOULD SEEK LEAVE TO INTERVENE IF IT WISHES TO PARTICIPATE IN THE
MERITS
Latham argues that it "is not a party or counsel in this action and a
special appearance to respond to ITT's falsehoods appears to be the only
available vehicle for the firm to present its views to the Court."3/
Latham is wrong. Given the purposes for which Latham wishes to participate
in this action, the proper procedural vehicle is a motion for leave to intervene
pursuant to Fed. R. Civ. P. Rule 24.4/ See, e.g., In re Pantopaque Prods. Liab.
Litig., 938 F. Supp. 266, 273 (D.N.J. 1996):
"It is axiomatic that a federal court may only adjudicate the claims of
persons who are parties before it. See SEC v. Investors Sec. Leasing Co.,
610 F.2d 175, 177-78 (3d Cir. 1979) (district courts do not have
jurisdiction to consider claims of nonparties). . . . As a threshold
matter, [the non-party] must first seek leave to intervene under Rule 24
before he may even assert his claims here. In re Fine Paper Antitrust
Litigation, 695 F.2d 494, 499 (3d Cir. 1982) (absent intervention
nonparties are without standing to present claims to a court)."
______________
3Application for Special Appearance in Connection With Latham & Watkins'
Response to ITT's Motion requiring Hilton to Discharge Latham & Watkins as
Counsel ("Application"), at 2. ITT notes, parenthetically, that Latham's
Application fails to comply with LR 7-2(a), which requires all motions to be
supported by a memorandum of points and authorities.
4There is also no reason why Latham's client, Hilton, could not have
submitted all of the affidavits and arguments that Latham has presented,
especially since ITT is seeking relief against Hilton. Hilton, for reasons not
disclosed in either set of papers, apparently chose not to do so.
<PAGE>
4
Because intervention of right is clearly unavailable,5/ Latham should either
withdraw its papers or file a motion for permissive intervention pursuant to
Fed. R. Civ. P. Rule 24(b). Latham must also comply with Fed. R. Civ. P. Rule
24(c), which requires, in addition to a motion, "a pleading setting forth the
claim or defense for which intervention is sought." Only by submitting to this
Court's jurisdiction through a request for intervention may Latham's papers and
requests for relief be considered.
CONCLUSION
For the reasons set forth above, ITT respectfully requests that the Court
deny Latham's application for special appearance and require Latham either to
withdraw its papers or file a motion to intervene pursuant to Rule 24(b).
DATED this 11th day of March, 1997.
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
________________
5In particular, Latham cannot show that its interests are
"inadequately represented by the other parties". United States v. Oregon,
839 F.2d 635, 637 (9th Cir. 1988). "In determining whether rights are
being adequately represented, it is appropriate to examine whether existing
parties' interests are such that they will make all of the arguments the
applicants would make." Id. at 638. In the present case, the interests of
Hilton and Latham do not diverge, and as already noted, there is no reason
why Hilton could not have submitted the arguments and evidence submitted by
Latham.
<PAGE>
5
CERTIFICATE OF SERVICE
Pursuant to Fed. R. Civ. P. 5(b), I hereby certify that service of the
foregoing ITT CORPORATION'S MEMORANDUM IN OPPOSITION TO LATHAM & WATKINS'
APPLICATION FOR SPECIAL APPEARANCE 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, Nevada 89101
Donald J. Campbell
Donald J. Campbell & Associates
300 South Fourth Street
Suite 1409
Las Vegas, Nevada 89101
and by delivering by facsimile and overnight mail a true copy of the same
to the following:
Bernard W. Nussbaum
Eric M. Roth
Marc Wolinsky
Scott L. Block
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
DATED this 11th day of March, 1997.
/s/ ELIZABETH MOULTON
------------------------------
An Employee of Kummer Kaempfer
Bonner & Renshaw
<PAGE>
Exhibit 99.41
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 ) Case No. CV-S-97-95-PMP(RLH)
and HLT CORPORATION, )
)
Plaintiffs, )
vs. )
)
ITT CORPORATION, )
)
Defendant. )
)
__________________________________
)
ITT CORPORATION, )
)
Defendant and )
Counterclaimant, )
)
vs. )
)
HILTON HOTELS CORPORATION )
and HLT CORPORATION, )
)
Plaintiffs and )
Counterdefendants. )
)
- -----------------------------------
-1-
<PAGE>
REPLY MEMORANDUM OF ITT CORPORATION ("ITT")
IN SUPPORT OF ITS MOTION FOR A PERMANENT
(OR PRELIMINARY) INJUNCTION REQUIRING
HILTON CORPORATION ("HILTON") TO DISCHARGE
LATHAM & WATKINS ("LATHAM") AS COUNSEL
PRELIMINARY STATEMENT
Latham disloyally undertook representation adverse to ITT while it
represented ITT.
Even under Latham's false assertion that it did not agree to represent ITT
on appeal in Eldredge, its representation of ITT did not end until February 7,
1997, while its adverse representation of Hilton began well before that. Thus,
even under Latham's false premise, Latham did wrong. See point I.A., infra.
In fact, Latham did agree to represent ITT in the Eldredge appeal.
(Fischkin Aff. PARAPARA 8-9; Frank Aff. PARA 3).1 Latham's declarants nowhere
assert that Latham did not undertake to represent ITT on appeal. That reticence
is not surprising in light of Ms. Wilkes's letter of January 3 remarking that "I
am looking forward to a fun and favorable appeal", Fischkin Supp. Aff. Ex. 2,
Mr. Wheeler's January 13 letter stating that "we plan to file a protective
cross-appeal on ITT Corporation's behalf",
_____________
1ITT submits herewith the Affidavit of Phillip B. Frank, Assistant General
Counsel of ITT-ESI ("Frank Aff."); the Affidavit of Johnathan B. Levine,
Assistant General Counsel for ITT ("Levine Aff."); the Supplemental Affidavit of
Theodore J. Fischkin ("Fischkin Supp. Aff."); and the Supplemental Declaration
of Professor Charles W. Wolfram ("Wolfram Supp. Decl."). ITT also incorporates
herein by reference its opening brief and the Affidavit of Theodore J. Fischkin
("Fischkin Aff.") and the Declaration of Charles W. Wolfram ("Wolfram Decl.")
submitted therewith.
-2-
<PAGE>
Fischkin Aff. Ex. 2, and the Latham diaries from October 1996 to January 1997
that show its preparation for appeal on behalf of both ITT and ITT-ESI.
Fischkin Supp. Aff. Ex. 1; See also Fischkin Supp. Aff. PARAPARA 6-8. Despite
this express agreement, Latham, obviously motivated by its own commercial goals
(Gillers Decl. PARA 21), chose to "resign" on January 31, 1997, after it had
received a series of inquiries from ITT about its representation of Hilton.
(Fischkin Aff. PARA 16). The "hot potato" rule, which is concededly the law
(Arabian Decl. PARA 36; Gillers Decl. PARA 21), prohibits such an attempt by
Latham to drop ITT for a richer assignment. See Point I.B., infra.
In its novel motion2,Latham makes at length a number of points designed to
distract from this plain violation of its duty of loyalty to ITT as a current
client.
First, contrary to Latham's and Hilton's arguments (Latham Mem. at 17;
Hilton Mem. at 3)3, Latham's misconduct will prejudice ITT. Latham has
confidential information directly from ITT, ITT's subsidiary ESI, and the WBIS
partnership that would be useful in Hilton's takeover attempt. (Fischkin Aff.
PARAPARA 5, 13, 14, 15; Fischkin Supp. Aff. PARAPARA 16, 18; Frank Aff. PARA 8;
Levine
_____________
2See ITT's Memorandum in Opposition to Latham & Watkins Application for
Special Appearance.
3Incredibly Latham and Hilton also charge (Latham Mem. at 1, 3; Hilton Mem. at
1) that ITT's motion is tactical, ignoring the fact that any client would be
deeply concerned that its lawyers, armed with its confidential information, were
representing a competitor in a hostile bid for it.
-3-
<PAGE>
Aff. PARAPARA 4-8). This requires disqualification. See Point II.A., infra.
Second, even if, contrary to fact, Latham's representations are viewed as
prior engagements, these representations are "substantially related" to Latham's
current representation of Hilton. In complex litigation and advice about
complex business transactions, lawyers are presumed to have obtained
confidential information, and, in fact, Latham did have such information.
Because Hilton or Latham may use this information to ITT's disadvantage, the
duty of confidentiality requires Latham's disqualification. See Point II.B.,
infra.
Third, this Court has the power to remedy the present inequitable
circumstances, in which Latham is assisting Hilton not only in its hostile
acquisition plan but on this motion. Prior to the existence of any justiciable
controversy, Hilton chose this forum for litigating disputes about its takeover
efforts and sought relief herein. Ironically, now that there is a real
controversy, involving continuing and irreparable harm, Hilton and Latham ask
this Court to stay its hand. That is not the law. See Point III, infra.
ARGUMENT
I. LATHAM BREACHED ITS DUTY OF LOYALTY TO ITT, A CURRENT CLIENT, BY
SIMULTANEOUSLY UNDERTAKING AN ADVERSE REPRESENTATION OF HILTON
-4-
<PAGE>
Latham must comply with California law, which it concedes (Gillers Decl.
PARA 13), and Washington D.C., law, which it ignores. Wolfram Supp.
Decl. PARA 9.4
Washington, D.C., utilizes a per se disqualification standard prohibiting a
law firm from concurrent representation of parties with adverse interests.5
Contrary to Latham's argument, the controlling law in California is to the same
effect. Latham misstates California law, failing to cite, much less
distinguish, the authoritative cases relied upon by ITT and by Professor
Wolfram. E.g., Flatt v. Superior Court, 885 P.2d 950 (Cal. 1994); Stanley v.
Richmond, 41 Cal. Rptr.2d 768 (Cal. Ct. App. 1995).6
_______________
4Latham's lead lawyer in Hilton's attempt to acquire ITT, Bruce Rosenblum, as
well Mr. Epstein (Levine Aff. PARA 2), who advises WBIS on FCC matters, practice
principally in Washington, D.C. The applicable choice-of-law rule is ABA Model
Rule 8.5 (b)(2)(ii), which mandates that Mr. Rosenblum and Mr. Epstein must
comply with D.C. ethics standards. See In re Prudential Insurance Co. of
America Sales Practices Litigation, 911 F. Supp. 148, 151 (D.N.J. 1995)
(applying amended rule 8.5 though not yet adopted by New Jersey Supreme Court)
5D.C. Rule 1.7 provides:
"(b). . . a lawyer shall not represent a client with respect to a matter
if:
(1) That matter involves a specific party or parties, and a position
to be taken by that client in that matter is adverse to a position taken or to
be taken by another client in the same matter, even though that client is
unrepresented or represented by a different lawyer". (See also Cmt. 10.)
6First, Latham fabricates that Professor Wolfram's analysis was premised upon
a superseded California ethical rule subsection. (Latham Mem. at 18.) That is
blatantly untrue. In fact, he primarily relied on several recent California
cases for that state's ethical standards, for the courts are the
-5-
<PAGE>
Thus, under either California or D.C. standards, Latham must be
disqualified if its representations of Hilton and ITT are concurrent and
adverse. Since there is no serious argument that the representations are not
adverse7, the only issue on this aspect of the motion is whether they were
concurrent.
_____________
final arbiters of the ethical standards to which lawyers must adhere. E.g.,
Wolfram Decl. PARAPARA 15, 18, 20-21; Supp. Decl. PARA 11. Professor Wolfram
also cited generally to the California bar rules as well as the ABA Model Rules,
the Restatement and other authorities. E.g., Wolfram Decl. PARAPARA 15, 16 &
n.5. In each instance Professor Wolfram reviewed the current rules. Id.; see
Wolfram Supp. Decl. PARA 11.
Second, Latham's citations to California State Bar authority are
unavailing, for lawyers cannot diminish the ethical standards required by the
California courts. E.g., Metro-Goldwyn-Mayer v. Tracinda, 43 Cal. Rptr. 2d 327,
331- 32. (Cal. Ct. App. 1995).
Third, the Arabian declaration (PARA 38) argues that because in Flatt the
attorney's conduct occurred in 1989, the Court "did not consider what the result
might have been under the version of Rule 3-310 currently in effect". In fact,
Flatt primarily relies on general principles and cites the California rules only
once, quoting rule 3-310(C)(2), which exists only in the current version of the
rule. Flatt, 885 P.2d at 954. In any event, the M-G-M and Stanley decisions
apply the Flatt holding to conduct occurring after rule 3-310 was amended.
(Wolfram Decl. PARA 20).
7Surprisingly, Latham argues in passing that its representation of Hilton is
not adverse to ITT. Latham Mem. 14. Latham is wrong. See Wolfram Supp. Decl.
PARAPARA 7-8. Latham's representation of Hilton is adverse as a matter of law.
See, e.g., In re King Resources Co., 20 B.R. 191, 201- 02 (Bankr. D. Colo. 1982)
("To say that the interest of [parties in a takeover transaction] were not
'adverse' in this context, is absurd."); see also R-T Leasing Corp. v. Ethyl
Corp., 484 F. Supp. 950, 952-53 (S.D.N.Y. 1979) (finding representation of
corporation in attempted merger to be adverse to interests of target in
disqualification ruling), aff'd, 633 F.2d 206 (2d Cir. 1980) (table). Latham's
citation (Mem. at 14-15 & n.4) to Goldstein v. Lees, 120 Cal. Rptr. 253, 256
(Cal. Ct. App. 1975) is misplaced: the court expressly limited its holding to
intra-corporate Board elections. See Wolfram Decl. PARA 8.
-6-
<PAGE>
We address this issue first on the basis of Latham's false assertion that
it agreed to represent ITT only at trial and show that even under this assertion
there is a conflict. See Section IA. Then we address the issue under the
actual facts and show how Latham dropped ITT like a hot potato after it was
confronted by ITT which had found out about the adverse representation because
of Hilton's public statements. See Section IB.
A. LATHAM CONCEDES THAT IT CONCURRENTLY REPRESENTED ITT AND HILTON IN ITS
HOSTILE BID FOR ITT
Neither Hilton nor Latham disputes that its representation of Hilton on
this matter began well before January 31, 1997, when Latham first gave notice to
ITT that it was quitting its representation of ITT. See Fischkin Aff. PARA 17 &
Ex. 6; Reply to Counterclaims PARA 20; Wolfram Decl. PARA 11.8 Not even a hint
was given before then. Frank Aff. PARA 2; Fischkin Supp. Aff. PARA 8.
Latham admits, as it must, that the duties of an attorney extend at the
very least "until entry of judgment in the trial court". Latham Mem. 16;
Gillers Decl. PARA 22; Arabian Decl. PARA 35. Let us assume, contrary to the
facts, that ITT and Latham contemplated a trial-only representation, which would
end on entry of final judgment. The question is then, when was final
_______________
8We do not know why Professor Gillers repeatedly refers to the "alleged work
for Hilton" (see, e.g., Gillers Decl. PARA 7). Hilton's CEO stated publicly
that Latham represented Hilton. Answer & Counterclaims PARA 20. Hilton has
admitted that. Reply to Counterclaims PARA 20.
-7-
<PAGE>
judgment entered? Latham uses the passive voice and indefinite "now" to avoid
answering that question candidly.9
So we'll be direct. The answer is February 7, 1997. Gillers Decl.
PARA 4(c). And Latham was concededly representing Hilton prior to that date.10
Latham should be disqualified under its own logic.11
_____________
9Latham asserts that:
"Final judgment has now been entered and the representation of ITT has
concluded." Latham Mem. at 15-16.
10Latham's declarants do an extraordinary dance to avoid the February 7
reality. Mr. Wheeler declares:
"On December 20, 1996 the Court signed its Statement of Decision granting
ITT's JNOV Motion and vacated and set aside the judgment against ITT... The
case thus ended favorably for ITT Corporation as of that date. Shortly
thereafter, we submitted an amended judgment to reflect the JNOV granted in
favor of ITT . . . Final judgment in favor of ITT has now been entered."
Wheeler Decl. PARA 7.
Never referring to the date judgment was entered (i.e., February 7), Mr.
Wheeler's next sentence misleadingly says:
"On January 31, 1997, I informed ITT in writing that Latham would not be
able to represent ITT in any future appeal that plaintiffs might file." Wheeler
Decl. PARA 8.
Latham's experts are no more candid. Professor Gillers declares:
"The matter on which Latham represented ITT ended (favorably). The
professional relationship then terminated and Latham chose not to accept the
further engagement of an appeal." Gillers Decl. PARA 22.
Justice Arabian refers only to "the successful conclusion of the Eldredge
litigation on behalf of ITT at the trial court level" (PARA 34). Justice
Arabian's "assumed facts" (PARA 6) refers only to Latham's advising ITT in
January 1997 that it would not represent ITT on appeal "following the granting
of ITT's motion for J.N.O.V. in December" (PARA 16).
11Professor Gillers nowhere addresses the issue arising out of his statement
that "entry of the trial court judgment terminated the professional relationship
between Latham and ITT" (Gillers Decl. PARA 22.) Professor Gillers knows that
the judgment was entered on February 7, 1997. Professor Gillers also knows that
the "alleged work" for Hilton was started
-8-
<PAGE>
B. LATHAM AGREED TO REPRESENT ITT ON THE ELDREDGE APPEAL12
Latham pretends that representation of ITT on appeal was a wholly separate
representation, neither contemplated nor undertaken by Latham. Latham Mem. at
15. That is false. Neither Ms. Wilkes nor Mr. Wheeler is willing to support
that assertion in their declarations.13 Latham's assertion is
_______________
substantially before January 27, 1997. Professor Gillers offers no justification
for Latham's disloyalty. Nor could he. Justice Arabian (PARA 16) suffers from
the same flaw.
12We note without further comment Latham's description of the plaintiffs suing
ITT and ITT-ESI for the alleged insufficiency of their hospitality management
training as "disgruntled hamburger flippers". Latham Mem. at 22.
13We urge the Court to look at the citations that Latham puts forward to argue
that its representation concluded after trial. These are:
(a) Justice Arabian (see Latham Mem. 15-18), who expressly states that his
opinion is based on the facts "assumed herein" (Arabian Decl. PARA 2);
(b) Wheeler Decl. at PARA7 is said to state that "Latham's representation
of ITT effectively ended on December 20, 1996" (Latham Mem. at 15), a conclusory
assertion that is wrong both on the facts and on the law, and Wheeler Decl. at
PARA 12, is said to state that "[n]o agreement . . . was ever reached for Latham
to do the appellate work" (Latham Mem. at 18), a statement that appears nowhere
in Mr. Wheeler's declaration; and
(c) Gillers Decl. PARAPARA 21-25, (Latham Mem. at 16, 18). Professor
Gillers, like Justice Arabian, simply assumes away Latham's direct
representation of ITT. Gillers Decl. PARA 6. Although Professor Gillers
counsels on the "need for precision" (Gillers Decl. PARA 5), Professor Gillers
simply assumes that Latham did not agree to represent ITT on appeal Eldredge.
Gillers Decl. PARA 3(d). His testimony on what Latham agreed to do (Gillers
Decl. PARAPARA 22-23) is unnecessarily cramped (Wolfram Supp. Decl. PARA 6),
but also absolutely wrong. Professor Gillers was given information (Gillers
Decl. PARA 4; Fischkin Aff. Ex. 2) that shows the falsity of his statement that
"Latham did not withdraw from its representation" (Gillers Decl. PARA 22;
Fischkin Aff. Ex. 6). And his assertion that "Ms. Wilkes denies that she agreed
to any such engagement" (Gillers Decl. PARA 24) is at best curious. Ms. Wilkes
never denies that Latham agreed to
-9-
<PAGE>
contradicted by (i) the work done for both clients almost on a daily basis after
December 20, as the Latham diaries document (see also Fischkin Supp. Aff.
PARA 7),14 (ii) Ms. Wilkes's addition to Latham's Eldredge team for purposes of
the appeal, (iii) Ms. Wilkes's and Mr. Wheeler's letters to Mr. Fischkin in
January 1997, (Fischkin Supp. Aff. Ex. 2; Fischkin Aff. Ex. 2), (iv) the
admitted lack of any withdrawal notice to ITT for six weeks after the j.n.o.v.
decision, and (v) Mr. Wheeler's withdrawal letter itself. Fischkin
Aff. PARAPARA 16, 17 and Exs. 2, 6; Fischkin Supp. Aff. PARAPARA 7-8, 10, 11 and
Exs. 1-4; Frank Aff. PARAPARA 2-3. In fact, the evidence is overwhelming that
an ITT appeal was contemplated and undertaken.15
The Fischkin Supplemental Affidavit (PARAPARA 6-11) summarizes the
extensive legal work that Latham's own diaries show was conducted in
anticipation of appeals in the Eldredge matter (see also Frank
______________
represent ITT on appeal. See Fischkin Supp. Aff. PARA 6. And the only cite in
Latham's brief is to the Gillers declaration. Latham Mem. at 16.
14Latham's recently fabricated claim that the representation ended on December
20 (Latham Mem. at 15) is further belied by its own documents. For example,
Mr. Wheeler, the partner in charge of the Eldredge trial, entered diaries for
work on the ITT judgment on January 29 and then wrote to ITT's Mr. Fischkin on
January 31, 1997, enclosing the proposed judgment and informing him that
Latham's ITT representation "is now concluded". Fischkin Aff. Ex. 6; Supp.
Fischkin Aff. PARA 7.
15Although Latham claims that ITT and ITT-ESI engaged Gibson, Dunn & Crutcher
to prepare the Eldredge appeal (Latham Mem. at 18), Gibson Dunn was only
retained as a backup consultant; in light of Latham's knowledge of the facts of
the case, both ITT and ITT-ESI were relying on Latham for the appeal. Fischkin
Supp. Aff. PARAPARA 8-9, 11; Frank Aff. PARA 6.
-10-
<PAGE>
Aff. PARAPARA 2-3). For example, on January 13, Mr. Fischkin was sent a
research memorandum prepared by Ms. Wilkes regarding issues of appellate
procedure that were specifically applicable to ITT on appeal. Fischkin Supp.
Aff. PARA 7 and Exs. 3-4. Perhaps even more striking is the correspondence
confirming Latham's intent to represent ITT on appeal. In a letter on
January 3, 1997, to Mr. Fischkin, Ms. Wilkes stated that she was "looking
forward to a fun and favorable appeal". Fischkin Supp. Aff. PARA 7 and Ex. 2.
Even more explicit was Joseph Wheeler's statement that "we plan to file a
protective cross-appeal on ITT Corporation's behalf, in addition to the notice
appealing the judgment, etc. as to ITT-ESI".16 Fischkin Aff. Ex. 2.17
Therefore, Latham's substantial representation of ITT in Eldredge18
and Hilton in this matter were concurrent, and the purported unilateral
withdrawal from Eldredge was untimely, as well as a violation of the "hot potato
rule" adopted in Flatt.
_______________
16In his declaration Mr. Wheeler fails to explain or even mention this letter.
17These admissions conclusively refute Latham's argument as a matter of law.
See Wolfram Supp. Decl. PARA 6; Fox v. Pollack, 226 Cal. Rptr. 532, 534 (Cal.
Ct. App. 1986) and cases cited therein; see also Proposed Restatement of the Law
Governing Lawyers Section 28 cmt. f (1996).
18Despite Justice Arabian's testimony (Arabian Decl. PARA 15), ITT does not
view $4 million in punitive damages--a figure which may well increase depending
on Eldredge's final disposition, which could prejudice ITT in the five other
actions already filed and lead to even more lawsuits being filed--as
"insubstantial". Fischkin Supp. Aff. PARA 4; Frank Aff. PARA 5.
-11-
<PAGE>
Latham breached its duty of loyalty to ITT.19 Wolfram Supp.
____________________
19The Eldredge appeal is not the only concurrent representation.
First, Latham concurrently represented ITT on antitrust issues. Fischkin
Supp. Aff. PARA 15; Frank Aff. PARA 15. Despite Mr. Rosch's claim that the work
was "completed" (Rosch Decl. PARA 8), the antitrust retention was explicitly
terminable only by ITT absent some "good cause", which Latham has not even
alleged (Fischkin Aff. Ex.5 at 3). In any event, neither party has even
purported to terminate, and Mr. Rosch has counseled Mr. Fischkin as recently as
mid-January. Fischkin Aff. PARA 15 & Ex. 5; Fischkin Supp. Aff. PARA 15.
Moreover, the purportedly broad blanket consent to future conflicts, which was
drafted by Mr. Rosch and includes a narrow illustrative example as to
environmental cross-claims that belies the present claim as to its intended
breadth and that confirms there was no meeting of the minds (see id. at 19;
Wolfram Supp. Aff. PARA 15) is unenforceable as a matter of law. Id. at
PARA 16. Hostile takeovers is one of a core group of adverse representations
that are so serious that consents thereto are per se unenforceable or
enforceable only after full disclosure and thorough discussion, which never
occurred here. Wolfram Supp. Decl. PARAPARA 15-16; Fischkin Supp. Aff. PARA 19.
Further, the opinions of Latham's experts are premised upon an erroneous view of
its scope and ignorance of the facts demonstrating its unenforceability.
Arabian Decl. PARA 32; Gillers Decl. PARAPARA 30-33; Fischkin Supp.
Aff. PARA 19. The representation of Hilton is simply not covered by the waiver.
Second, the representation of WBIS requires disqualification. Given that
WBIS has no employees, ITT had a single partner, Latham received confidential
information in the representation, and Latham had direct contacts with ITT,
Latham's representation of the partnership that owns WBIS is a representation of
the individual partners. Johnson v. Superior Court, 45 Cal. Rptr. 2d 312,
319-321 (Cal. Ct. App. 1995); Fischkin Aff. PARA 14. Indeed, Mr. Epstein
concedes that half his fee was paid directly by ITT Broadcasting (Epstein Decl.
PARA 4).
Third, the representation of ITT-ESI is also a representation of ITT.
Wolfram Supp. Decl. PARAPARA 12-14. Concurrent representation of ITT-ESI and
Hilton on this matter violates the duties of loyalty and confidentiality. In
representing ITT-ESI, Latham lawyers have been working closely with ITT's
Assistant General Counsel and Director, Litigation, Mr. Fischkin, on trial
preparation, trial, post-trial motions and interlocutory and final appeals; and
that work continues in this pivotal case. Fischkin Supp. Aff. PARAPARA 5, 13-14;
Frank Aff. PARAPARA 4,6. Simultaneously Latham is advising Hilton in its hostile
bid for ITT while ITT's Mr. Fischkin is working against the interests Latham now
represents "in virtually all adversary
-12-
<PAGE>
Decl. PARAPARA 2-6.
II. LATHAM'S BREACH OF THE DUTY OF CONFIDENTIALITY REQUIRES ITS
DISQUALIFICATION
The duty of confidentiality applies to past (and present) representations
if confidential information is obtained pursuant to the representation. It is
breached if the law firm accepts an adverse representation in which the
confidential information may be useful. Wolfram Supp. Decl. PARA 14.
A. LATHAM HAS OBTAINED CONFIDENTIAL INFORMATION DURING ITS REPRESENTATION
OF ITT, ITT-ESI, AND WBIS
Latham had access to confidential information regarding business plans,
competitive strategies, market studies, joint programming proposals,
confidential government submissions, privileged communications, antitrust
analyses and other competitively sensitive information of ITT, ITT-ESI and WBIS.
Fischkin Aff. PARAPARA 5, 13-15; Fischkin Supp. Aff. PARAPARA 16, 18; Levine
Aff. PARAPARA 4-7; Frank Aff. PARAPARA 7- 8.20 That information was obtained
________________
situations involving Hilton". Fischkin Supp. Aff. PARA 14. That is a conflict
of loyalty for Latham and an intolerable working situation for ITT's own
counsel. Id. at PARAPARA 13-14; Wolfram Supp. Aff. PARA 14. Moreover, because
Latham obtained confidential information about ITT that would be useful to
Hilton in representing ITT-ESI, Latham must be disqualified. See id.;
Restatement of the Law Governing Lawyers Section 213 Comment g (ii); Gillers
Aff. PARAPARA 8-9; Frank Aff. PARAPARA 7-8.
20Latham's brief (e.g., at 20-21) includes sweeping claims that no confidential
information was obtained but the declarations (e.g., Rosch Decl.; Epstein Decl.
PARA 7) do not substantiate these assertions. See Fischkin Aff. PARA 15;
Fischkin Supp. Aff. PARAPARA 17-18; Levine Aff. PARA 3. For example, Mr. Rosch
could not and did not deny that he received substantial confidential
information. See Fischkin Aff. PARAPARA 5,
-13-
<PAGE>
directly from ITT, and from ITT-ESI and WBIS; it concerns ITT itself, its 83%
owned subsidiary ITT-ESI and WBIS, which ITT and Dow-Jones Co. own in a
partnership.
Latham repeatedly complains that ITT's evidence of confidential information
is conclusory and insufficiently detailed. (Latham Mem. at 1, 8-9, 22-23.) But
an aggrieved client need not reveal the very confidential information at issue
in order to disqualify a conflicted attorney. See, e.g., Global Van Lines, Inc.
v. Superior Court, 192 Cal. Rptr. 609, 613 (Cal. Ct. App. 1983); T.C. Theatre
Corp. v. Warner Bros. Pictures Inc., 113 F. Supp. 265, 269 (S.D.N.Y. 1953). And
any doubt about the existence of a conflict of interest must be resolved in
favor of disqualification. See, e.g., Lemelson v. Apple Computer, Inc., 28
U.S.P.Q.2d (BNA) 1412, 1418, 1993 WL 556452, *8 (D. Nev. 1993); Flushing Sav.
Bank v. FSB Properties, Inc., 482 N.Y.S.2d 29, 31 (N.Y. App. Div. 1984)21
_________________
13, 14, 15; Fischkin Supp. Aff. PARAPARA 16, 18; Frank Aff. PARA 8. Although
Mr. Rosch's 1996 bill totals only 10.3 hours (as Mr. Arabian repeatedly
emphasizes, see Arabian Decl. PARAPARA 2(e), 33) it is the sensitivity of that
information that is significant. Mr. Wheeler claims that Latham "received no
confidential information pertaining to ITT" but concedes discussing "the legal
issues in the case" with ITT. Wheeler Aff. PARA 9. As ITT-ESI's counsel
explains, confidential business information was obtained and "Latham's insight
into Eldredge and its potential effect on ITT-ESI in related cases would be
invaluable in evaluating ITT-ESI." (Frank Aff. PARA 7-8.)
21Latham uses a double standard. It demands ITT divulge, in detail, valuable
confidential information (Latham Mem. at 8-9, 20-21), but refuses to confirm its
retention in Hilton's takeover attempt (Latham Mem. at 3 n.1) and then reveals
nonpublic information about ITT's representation without ITT's consent. See
Epstein Decl. PARA 5; Levine Aff. PARA 7.
-14-
<PAGE>
Nonetheless, ITT has provided specific information on the confidential
information in the affidavits submitted herewith. E.g., Levine Aff.
PARAPARA 4-5 (re. WBIS); Frank Aff. PARAPARA 7-8 (re. ITT-ESI); Fischkin Supp.
Aff. PARAPARA 16-18.
B. THE "SUBSTANTIAL RELATIONSHIP" TEST IS SATISFIED
Pursuant to its Eldredge, WBIS and antitrust representations, Latham has
obtained confidential information that would be (i) helpful to Latham in
advising Hilton as to the ITT takeover, (ii) useful to Hilton in its hostile bid
for ITT and in evaluating ITT subsidiaries and ITT, and (iii) damaging to ITT
(and its subsidiaries) if revealed to Hilton and others. Frank Aff.
PARAPARA 7-8; Levine Aff. PARAPARA 4-6.22 Therefore, such representations are
"substantially related" to Latham's representation of Hilton in its bid for ITT.
Trone v. Smith, 621 F.2d 994, 998 (9th Cir. 1980). Irrespective of the source
of the information, the adverse representation creates substantial risk that
pertinent confidential client information will be used by
_________________
22Professor Gillers presents purported "policy justifications for not
converting representation of a whole or partly owned subsidiary into a client
relationship with its. . . parent" (Gillers Decl. PARA 10), namely that there
could be a "chain reaction . . . resulting in denial of counsel of choice to
others and in the temptation for opportunistic". With respect, we fail to see
why Professor Gillers ignores the "impressive" policy justifications requiring
loyalty to one's clients, especially in a circumstance where Hilton is hardly
bereft of counsel and there is absolutely no evidence that ITT picked Latham to
represent it in order to disqualify Latham in a subsequent bid by Hilton for
ITT. Justice Arabian's reference to "tactical abuse" (Arabian Decl. PARA 2e) is
similarly wholly mysterious.
-15-
<PAGE>
(or for the benefit of) an adverse party. The creation of that risk constitutes
a breach of the duty of confidentiality and requires relief. See Wolfram Supp.
Decl. PARA14; Gillers Decl. PARA 8; Rosenfeld Constr. Co. v. Superior Court, 286
Cal. Rptr. 609, 613 (Cal. Ct. App. 1991); Western Continental Operating Co. v.
Natural Gas Corp., 261 Cal. Rptr. 100, 104 (Cal. Ct. App. 1989).23
Under the substantial relationship test that governs lawyers as to past
representations, Latham's behavior constitutes a breach of its duty of
confidentiality even if ITT were only a former client of Latham. Although in
its brief, Latham admits that a substantial relationship should be inferred24,
Latham proceeds to ignore this test -- obviously because in representing
corporate clients in the complex Eldredge litigation and on these sensitive
antitrust and F.C.C. issues, confidential information
__________________
23Justice Arabian, however, asserts that "affiliated entities are to be treated
as separate and distinct, unless they are as a practical matter alter egos of
one another," (Arabian Decl. PARA 2a). Not only is the Justice's view of the
law wrong (Wolfram Supp. Decl. PARA 14), but it is contradicted by Professor
Gillers (Gillers Decl. 8). Latham misstates the law on representation of
subsidiaries and parents. See Wolfram Supp. Aff. PARA 12. The issue is not
whether ITT-ESI is ITT's alter ego or whether "ITT controlled the defense" in
Eldredge (Gillers Decl. PARA 8), but whether Latham received "confidential
information" that can be used against ITT by Hilton. Wolfram Supp.
Decl. PARA 14.
24"When it appears by virtue of the nature of the former representation or the
relationship of the attorney to his former client confidential information
material to the current dispute would normally have been imparted to the
attorney". (Latham Mem. at 21, quoting Global Van Lines, 192 Cal. Rptr. at
613.)
-16-
<PAGE>
"would normally have been imparted to [Latham]". Moreover, such information is
"material to the current dispute" (the Hilton hostile bid). See Wolfram Decl.
PARAPARA 20, 21; Frank Aff. PARA 7; Levine Aff. PARA 6 (discussing the possible
uses to which Hilton could put the confidential information obtained by Latham
in its takeover attempt).
Permanent or preliminary injunctive relief to protect such confidential
information is mandated. Rosenfeld Constr. Co., 286 Cal. Rptr. at 613.
III. THIS COURT SHOULD ORDER HILTON TO DISCHARGE LATHAM
Hilton admits that Latham is representing Hilton in its attempted takeover
of ITT (Reply to Counterclaims PARA 20) and that this action was brought "to
facilitate [its] tender offer" (Compl. PARA 1). Yet Hilton and Latham now tell
this Court that it lacks the power to disqualify Latham because Latham is not
counsel of record. Latham Mem. at 5; Hilton Mem. at 2. Hilton and Latham are
wrong.
Not surprisingly, courts have explicitly recognized their power to afford
relief in these circumstances. For example, in E. F. Hutton & Co. v. Brown, 305
F. Supp. 371 (S.D. Tex. 1969), the defendant disqualified a law firm that
advised the plaintiff but that had not appeared in the case, concluding (i) that
the "Court's inherent power to manage its affairs is broad enough to reach such
conduct", id. at 378 (internal quotation marks and footnotes omitted), and
(ii) that it had the power under the All Writs Act (28 U.S.C. Section 1651) to
enjoin the client from obtaining
-17-
<PAGE>
advice from the conflicted firm, id. at 379.25 Moreover, courts have recognized
the inherent irreparable harm to a client in ITT's position and preliminarily
enjoined companies from retaining counsel with a conflict of interest. E.g.,
Ladner v. American Home Assurance Co., 201 A.D. 2d 302, 304, 607 N.Y.S.2d 296,
298-99 (N.Y. App. Div. 1994).
Hilton and Latham argue that state bar rules do not provide a private right
of action against attorneys (Hilton Mem. at 2; see Latham Mem. at 6), but that
is beside the point. An attorney owes a fiduciary duty to the client, and a
breach of that duty creates an actionable claim for relief.26
An injunction is a proper remedy against the attorney or the second
client.27 See E. F. Hutton, 305 F. Supp. at 379; Anderson
________________
25The All Writs Act, 28 U.S.C. Section 1651(a), provides: "The Supreme Court
and all courts established by Act of Congress may issue all writs necessary or
appropriate in aid of their respective jurisdictions and agreeable to the usages
and principles of law." See ITT Community Dev. Corp. v. Barton, 569 F.2d 1351,
1359 (5th Cir. 1978). ("Both All Writs Act and the inherent powers doctrine
provide a federal court with various common law equity devices to be used
incidental to the authority conferred on the court by rule or statute.")
26E.g., Maritrans GP Inc. v. Pepper, Hamilton & Scheetz, 602 A.2d 1277 (Pa.
1992) ("the courts of this Commonwealth and throughout the United States . . .
have imposed civil liability on attorneys for breaches of their fiduciary duties
by engaging in conflicts of interest, notwithstanding the existence of
professional rules under which the attorneys also could be disciplined");
Griva v. Davison, 637 A.2d 830, 847 (D.C. 1994).
27Neither Latham nor Hilton disputes the fact that an injunction is the
appropriate remedy where there is a breach of the attorney's duty of loyalty.
See Alexander Proudfoot PLC v. Federal Ins. Co., No. 93C6287, 1994 WL 110531, at
*2 (N.D. Ill.
-18-
<PAGE>
v. Air West, Inc., 542 F.2d 522, 526 (9th Cir. 1976) ("even if not at fault, [a
client] should not be permitted to benefit from the wrong of [its] attorney");
Haynes v. First Nat'l State Bank, 87 N.J. 163 (N.J. 1981) (innocent will
beneficiaries may be incidentally penalized by disqualifying a will drafted by
conflicted lawyers); Charles W. Wolfram, Modern Legal Ethics Section 7.1.7, at
330 (1986).
Finally, Latham claims "that Latham has not been involved in any litigation
against ITT and has filed no documents with the SEC relating to the takeover".
(Latham Mem. at 5.) Yet, Latham has moved to strike the Fischkin affidavit and
submitted a draft order denying that in one of ITT's counterclaims. By
assisting Hilton in this case, Latham is undeniably "involved in litigation
against ITT".28
Injunctive relief is within this Court's power and appropriate.
________________
Mar. 30, 1994) (only through the remedy of disqualification can the "sanctity of
the attorney client relationship be maintained"). See generally ITT Mem. at
11-15.
28An attorney practicing before this Court must comply with Nevada Rule 157.
U.S. Dist. Nev. Loc. R. IA 10-7(a). Rule 157 provides that:
"[a] lawyer shall not represent a client if the representation of that
client will be directly adverse to another client, unless . . . [e]ach client
consents, preferably in writing, after consultation". Nev. S. Ct. R. P.C.
157(b).
-19-
<PAGE>
CONCLUSION
For the reasons set forth above, ITT's motion for summary judgment on Count
One of its Counterclaims seeking permanent injunctive relief requiring Hilton to
dismiss Latham as counsel in connection with Hilton's attempted hostile takeover
of ITT should be granted, or, in the alternative, ITT respectfully requests a
preliminary injunction barring Hilton from seeking Latham's counsel until the
Court can review the merits.
DATED this 11th day of March, 1997.
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
-20-
<PAGE>
CERTIFICATE OF SERVICE
Pursuant to Fed. R. Civ. P. 5(b), I hereby certify that service of the
foregoing REPLY MEMORANDUM OF ITT CORPORATION ("ITT") IN SUPPORT OF ITS MOTION
FOR A PERMANENT (OR PRELIMINARY) INJUNCTION REQUIRING HILTON CORPORATION
("HILTON") TO DISCHARGE LATHAM & WATKINS ("LATHAM") AS COUNSEL 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, Nevada 89101
Donald J. Campbell
Donald J. Campbell & Associates
300 South Fourth Street
Suite 1409
Las Vegas, Nevada 89101
and by delivering by facsimile and overnight mail 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 11th day of March, 1997.
/s/ Elizabeth Moulton
--------------------------------------
An Employee of Kummer Kaempfer Bonner &
Renshaw
-21-
<PAGE>
Exhibit 99.42
UNITED STATES DISTRICT COURT
DISTRICT OF NEVADA
* * *
________________________________________
HILTON HOTELS CORPORATION AND HLT |
CORPORATION, |
| CV-S-97-095-PMP
Plaintiffs, | (RLH)
|
v. | O R D E R
|
ITT CORPORATION, |
|
Defendant. |
|
_______________________________________|
Before the Court for consideration is Defendant/
Counterclaimant ITT's Motion for a Permanent (or a Preliminary) Injunction
Requiring Hilton to Discharge Latham & Watkins as Counsel (#13B) filed February
13, 1997. ITT supplemented its Motion (#15) on February 14, 1997.
On February 28, 1997, the law firm of Latham & Watkins filed an Application
for Special Appearance in Connection with Latham & Watkins' Response to ITT's
Motion Requiring Hilton to Discharge Latham & Watkins as Counsel (#39). Also
filed on that date was Latham & Watkins' Request for Judicial Notice of Public
Securities Filings in Connection with Latham & Watkins' Response Requiring
Hilton to Discharge Latham & Watkins as Counsel (#40), Latham & Watkins'
Response to ITT's Motion Requiring Hilton to Discharge Latham & Watkins as
Counsel (#41), Latham and Watkins' Objections to, and Motion to Strike, the
Affidavit
<PAGE>
2
of Theodore J. Fischkin (#42), the Declaration of Joseph J. Wheeler (#43), and
a Courtesy Copy of Bar Opinions and Out of State Rules of Professional Conduct
(#44). Additionally, Plaintiffs Hilton Hotels Corporation and HLT Corporation
filed a Memorandum in Opposition to ITT's Motion for a Permanent (or a
Preliminary) Injunction Requiring Hilton to Discharge Latham & Watkins as
Counsel (#47) on February 28, 1997.
On March 11, 1997, Defendant/Counterclaimant ITT Corporation filed a Reply
Memorandum in Support of its Motion for a Permanent or a Preliminary Injunction
Requiring Hilton Corporation to Discharge Latham & Watkins as Counsel (under
seal), an Opposition to Latham & Watkins' Objections to and Motion to Strike the
Affidavit of Theodore J. Fischkin (#53), and an Opposition to Latham & Watkins'
Application for Special Appearance (#54).1
Latham & Watkins has not entered an appearance as counsel of record on
behalf of Hilton in these proceedings. Having read and considered the Motions
and Affidavits submitted above, the Court finds that ITT has failed to present
evidence of an ethical violation by Latham & Watkins
_________________
1The Reply Memorandum of ITT Corporation was submitted to the Clerk of Court
under seal. However, additional copies of ITT's Reply were submitted to the
Clerk's Office in an unsealed condition and were routinely, albeit mistakenly,
placed in the Clerk's Office "lodge box" for public examination. The Court is
uncertain whether ITT's Reply Memorandum was viewed by any member of the public,
and all copies of ITT's Reply have now been sealed by the Court.
<PAGE>
3
or a basis for enjoining Hilton from utilizing the services of Latham & Watkins
in connection with the instant litigation. Under the circumstances, ITT's
Motion for Preliminary or Permanent Injunctive relief must be denied.
IT IS THEREFORE ORDERED that ITT's Motion for a Permanent (or a
Preliminary) Injunction Requiring Hilton to Discharge Latham & Watkins as
Counsel (#13B and #15) is denied.
IT IS FURTHER ORDERED that Application for Special Appearance in Connection
with Latham & Watkins' Response to ITT's Motion Requiring Hilton to Discharge
Latham & Watkins as Counsel (#39) is granted.
IT IS FURTHER ORDERED that Latham & Watkins' Request for Judicial Notice of
Public Securities Filings in Connection with Latham & Watkins' Response
Requiring Hilton to Discharge Latham & Watkins as Counsel (#40) is granted.
IT IS FURTHER ORDERED that Latham and Watkins' Objections to, and Motion to
Strike, the Affidavit of Theodore J. Fischkin (#42) is denied.
<PAGE>
4
IT IS FURTHER ORDERED that Defendant/Counterclaimant ITT's Reply Memorandum
shall be retained by the Clerk of Court in a sealed condition.
DATED: March 12, 1997
/s/ Philip M. Pro
----------------------------
PHILIP M. PRO
United States District Judge
<PAGE>
Exhibit 43
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, ) Case No. CV-S-97-95-PMP(RLH)
)
Plaintiffs, )
vs. )
)
ITT CORPORATION, )
)
Defendant. )
)
)
ITT CORPORATION, )
)
Defendant and )
Counterclaimant, )
)
vs. )
)
HILTON HOTELS CORPORATION and )
HLT CORPORATION, )
)
Plaintiffs and )
Counterdefendants. )
________________________________)
ITT'S MEMORANDUM IN OPPOSITION TO
HILTON'S MOTION FOR A PRELIMINARY INJUNCTION
REQUIRING ITT TO CONDUCT ITS ANNUAL MEETING IN MAY 1997
ITT Corporation ("ITT") respectfully submits this memorandum in
opposition to the February 26, 1997 motion of
<PAGE>
2
Hilton Hotels Corporation and HLT Corporation (collectively "Hilton") for
an order requiring ITT to hold its annual meeting of stockholders in May
1997.1
PRELIMINARY STATEMENT
Hilton's motion is a transparent attempt to bring to a premature end
the takeover battle Hilton precipitated. Hilton, whose interests as a
potential purchaser are obviously adverse to those of ITT's stockholders as
potential sellers, wants ITT to hold its annual meeting in May because
holding the meeting later in the year might allow the uncertainties
regarding Hilton's offer to be clarified and might allow ITT time to
implement alternative means of providing ITT's stockholders with higher
value.
Hilton's motion should be denied:
-- Hilton's contract claim is without merit. Hilton has not
demonstrated that ITT's By-laws require a May meeting. In fact,
the By-laws and the Nevada statute contain no such requirement.
See
___________________
1ITT submits herewith the Affidavits of ITT's Chairman and Chief
Executive Officer, Rand V. Araskog ("Araskog Aff."); Columbia
University Law School Professor, John C. Coffee, Jr. ("Coffee Aff.");
Georgeson & Company, Inc. Chief Executive Officer, William M. Crane
("Crane Aff."); Goldman, Sachs & Co. Managing Director, Cody J. Smith
("Smith Aff."); ITT's General Counsel, Richard S. Ward ("Ward Aff.");
ITT Outside Director, Margita E. White ("White Aff."); and Von S.
Heinz ("Heinz Aff."). References to Hilton's Memorandum will be in
the form "Pl. Br."; references to the Affidavit of Daniel H. Burch,
submitted by Hilton, will be in the form "Burch Aff."
<PAGE>
3
Section I.A. Moreover, Hilton has not demonstrated a "vested
right" in the By-laws because the By-laws may be amended by the
Board. See Section I.B.
-- Hilton's breach of fiduciary duty claim is without merit. The
claim fails even if Blasius were the law of Nevada, which it is
not, because Hilton has not demonstrated that the Board's primary
purpose is to interfere with the franchise (see Section II.A) and
Blasius does not apply because the Board has not set the meeting
date (see Section II.B). Moreover, Hilton has not demonstrated
the bad faith required to show a breach of fiduciary duty under
Nevada law. See Section II.C.
-- Hilton has not demonstrated that a meeting later than May would
cause it to suffer irreparable harm. See Section III.
STATEMENT OF FACTS
A. HILTON'S TENDER OFFER AND ITT'S RESPONSE
On January 27, 1997, Hilton announced a tender offer for 50.1% of the
common stock of ITT at a price of $55 per share (the "Offer"). Crane Aff.
PARA 3; Araskog Aff. PARA 3. Hilton has also announced its intention,
following successful completion of the Offer, to cause a merger of ITT and
Hilton in which each share of ITT common stock not
<PAGE>
4
purchased in the Offer would be exchanged for Hilton common stock having a
nominal value of $55, subject to certain unspecified collars (the "Proposed
Squeeze Out Merger", together with the Offer, the "Hilton Transaction").
Id.
ITT's Board considered the issues raised by Hilton's offer and
unanimously voted to recommend that ITT's stockholders reject the Offer.
ITT's financial advisors, Goldman Sachs & Co. ("Goldman") and Lazard Freres
& Co. LLC ("Lazard") studied the Offer and determined that it was
inadequate. Smith Aff. PARA 7. The market confirms the inadequacy of
Hilton's Offer since ITT's stock has traded above the Offer price every day
since Hilton's announcement. Coffee Aff. PARA 19. As of February 28, 1997,
approximately 710,000 ITT shares, that is about 2/3 of 1% of the
outstanding shares, had been tendered to Hilton. See Heinz Aff., Ex. K.
In the face of Hilton's inadequate and coercive two-tiered offer, ITT
and its advisors are continuing to refine ITT's long-term strategic plan
and are investigating and pursuing means of ensuring that ITT's
stockholders realize the full, long-term benefits of their investment in
ITT. Araskog Aff. PARAPARA 5, 8; Smith Aff. PARAPARA 5, 9. If they are to
be implemented responsibly, these efforts take time. Smith Aff. PARAPARA
4, 5; Coffee Aff. PARAPARA 15, 18, 40; Crane Aff. PARA 7. In fact,
Hilton's President and Chief Executive Officer, Stephen F. Bollenbach, has
specifically warned against the
<PAGE>
5
dangers of a "fire sale". See Heinz Aff., Ex. J. ITT is demonstrating its
ability to deliver superior value through transactions such as the recent
agreement regarding Madison Square Garden. Araskog Aff. PARA 7. Even
Hilton's Mr. Bollenbach has been reported to be "pleased" by this recent
transaction. Heinz Aff., Ex. B.
In an effort to overcome the Board's decision that the interests of
the corporation, its stockholders and its other constituencies would be
best served by the Board's resisting the Offer, Hilton has nominated a
slate of directors for election at the next annual meeting. Crane Aff.
PARA 4; Burch Aff., Ex. A. Hilton's nominees are "committed to remove
obstacles to the consummation of Hilton's proposed tender offer and merger"
(Pl. Br. at 2).
B. ITT'S BY-LAWS AND THE NEVADA STATUTORY SCHEME
ITT's By-laws are fully consistent with the statutory scheme governing
Nevada corporations with respect to the Board's authority: (1) to manage
the affairs of the corporation; (2) to determine the date of the annual
meeting; and (3) to amend the By-laws.
Section 2.1 of ITT's By-laws (Burch Aff., Ex. D) provides that:
"The business and affairs of the Corporation shall be
managed by or under the direction of the Board, which
may exercise all the powers of the Corporation except
such as are by applicable law, the Articles of
Incorporation or these By-laws required to be exercised
or performed by the stockholders."
<PAGE>
6
This By-law is consistent with NRS 78.120(1), which provides:
"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."
Consistent with this broad grant of authority under the By-laws
and under the Nevada statutes, Section 1.2 of ITT's By-laws
provides the Board with the discretion to determine the date of
the annual meeting of stockholders:
"An annual meeting of stockholders shall be held at
such place (within or outside the state of Nevada), date and
hour as shall be determined by the Board and designated in
the notice thereof."
This By-law is consistent with NRS 78.330(1), which provides:
"Unless otherwise provided in the by-laws, the board of
directors have the authority to set the date, time and place
for the annual meeting of the stockholders."
Section 2.2 of ITT's By-laws establishes the term of office for
Directors:2
"Each Director shall hold office until the next annual
meeting of stockholders and until his or her successor is
elected and qualified or until
_____________
2Hilton mistakenly refers to Section 1.3 of the By-laws as
establishing a term of office. See Pl. Br. at 1; Burch Aff. PARA 4.
That section, which sets forth the purpose of the annual meeting,
provides: "At each annual meeting, the stockholders shall elect the
members of the Board for the succeeding year."
<PAGE>
7
his or her earlier death, retirement, resignation or
removal."3
Section 2.2 is consistent with NRS 78.345(1), which establishes a
time period that must expire before stockholders may petition the
courts to force the directors to hold an election:
"If any corporation fails to elect directors within
18 months after the last election of directors required by
NRS 78.330, the district court has jurisdiction in equity,
upon application of any one or more stockholders holding
stock entitling them to exercise at least 15 percent of the
voting power, to order the election of directors in the
manner required by NRS 78.330."
Hilton understands that the By-laws and statutes do not
require a May meeting. Thus, Stephen F. Bollenbach, Hilton's
President and Chief Executive Officer, stated during a
January 28, 1997, teleconference with industry analysts, in
response to a question regarding whether ITT could delay its
annual meeting: "I am advised by counsel that they can delay it
for a couple of months . . . ." Heinz Aff., Ex. C at 6.4 That
ITT can hold its annual meeting later than
_________________
3Hilton's counsel stated at the March 5 oral argument: "The bylaws say
a director shall serve a term of one year, not eighteen months, not
till November of 1997, one year, to May 1997." Heinz Aff., Ex. A
at 55. That statement is incorrect.
4Mr. Bollenbach, invoking boxing history, declined to be more specific
on what he meant by "several months". Id. There is obviously no
principled basis on which to draw any distinction between a "couple of
months" and the longer period specified in NRS 78.345. It is
therefore clear that
<PAGE>
8
May is also consistent with the use of the phrase "annual
meeting" in the by-laws of other major corporations (Coffee Aff.
PARA 37, Ex. A), as well as the use of that phrase in ITT's By-
laws to distinguish this "regular" meeting from any "special"
meetings. Ward Aff. PARAPARA 3-4.
The Board also has the express power to amend the By-laws.
Section 13 of ITT's By-laws provides:
"Except as otherwise provided in Section 2.8(b) of these
By-laws, these By-laws, or any of them, may from time to
time be supplemented, amended or repealed, or new By-laws
may be adopted, by the Board at any regular or special
meeting of the Board, if such supplement, amendment, repeal
or adoption is approved by a majority of the entire Board."5
This By-law is consistent with NRS 78.120(2), which provides:
"Subject to the by-laws, if any, adopted by the
stockholders, the directors may make the by-laws of the
corporation."
_________________
Hilton does not even believe its own argument that the By-laws require
a meeting in May, especially since Hilton is obviously also on notice
that the By-laws are subject to amendment by the Board.
5The sole exception to the Board's authority to amend the By-laws relates to a
special provision of the By-laws, Section 2.8(b), that requires that the
Compensation Committee, which determines the compensation and benefits afforded
the employees of the Company, must be composed of a majority of independent
directors.
<PAGE>
9
C. ITT'S 1997 ANNUAL MEETING
ITT's Board of Directors has not established the date for
the 1997 annual meeting. White Aff. PARA 4. ITT's Board is
considering the numerous, complex issues raised by Hilton's
hostile takeover attempt, its proposed second-step squeeze out
merger and its proxy solicitation. Id.; Araskog Aff. PARAPARA 4-
5. The Board's actions have been taken, and will be taken, with
a view toward the interests of the corporation, its stockholders
and the other constituencies whose interests are recognized by
Nevada law. White Aff. PARA 5; Araskog Aff. PARA 5.6 ITT's
Board, of which only two of the eleven are ITT employees, is not
attempting to entrench itself. White Aff. PARA 6; Araskog Aff.
PARA 8.
Moreover, a number of factors would strongly support a
decision to hold the annual meeting later than the May date
sought by Hilton.
First, to force a stockholder vote in May would handcuff the
ITT board at exactly the point when its stockholders most rely on
it to enhance stockholder
________________
6 The exercise of the directors' powers is subject to the duty set forth in
NRS 78.138(1), which provides:
"Directors and officers shall exercise their powers in good faith and with a
view to the interests of the corporation."
<PAGE>
10
value. Coffee Aff. PARAPARA 8, 14, 21; Smith Aff. PARA 8.7
Additional time will allow ITT to refine and implement its
strategic plan in a value-maximizing manner. Crane Aff. PARA 6;
Smith Aff. PARA 5. If Hilton's demand for a premature election
is granted, ITT may have to disclose with whom it is negotiating,
the prices it expects and similar details in order to support the
credibility of its strategic plan and these disclosures would
undercut ITT's bargaining power and its ability to negotiate
superior prices. Smith Aff. PARA 6. Moreover, the ability to
evaluate the Hilton Transaction against ITT's actual 1997 results
based on ITT's refinement of its long-term strategic plan would
add a level of certainty to the comparison, as well as increase
the value to ITT's stockholders and ITT's other constituencies.
Smith Aff. PARA 9.
Second, the actual value of Hilton's proposed transaction is
uncertain due to numerous issues which require time to resolve,
including, but not limited to: (a) whether the consideration to
be received in the Hilton Transaction represents adequate value
for ITT's stockholders; (b) the actual value of the consideration
_________________
7 As Professor Coffee explains, a bidder in Hilton's position would
logically want a quick stockholder vote precisely because an early vote
would reduce the ITT Board's opportunity to pursue alternative strategies.
Coffee Aff. PARA 15; see also Smith Aff. PARAPARA 4, 8; Crane Aff. PARAPARA
11, 13.
<PAGE>
11
to be received by ITT's stockholders in the Proposed Squeeze Out
Merger; (c) what conditions will be imposed on Hilton in
connection with its financing arrangements for the Offer;
(d) whether Hilton's preliminary understanding with HFS, Inc. to
license, on a long-term, worldwide basis, ITT's Sheraton
trademark, franchise system and management agreements would have
an adverse effect on that business; (e) whether Hilton has had
access to and misused confidential ITT information; (f) whether
the Hilton Transaction violates the antitrust laws; and
(g) whether Hilton will obtain the necessary regulatory approvals
in connection with the Hilton Transaction.8 Araskog Aff. PARA 4;
Crane Aff. PARA 8; Smith Aff. PARAPARA 7, 12.
Third, if the takeover contest is not artificially cut off,
the stockholders will be beneficiaries of responses that can be
taken over time that will require increases to the Offer price if
the Offer is to be meaningful, particularly, as here, where the
Offer was designed to take advantage of the temporarily depressed
pre-Offer price of ITT common stock (thus Hilton's
__________________
8The burden of non-consummation of the Hilton Offer will be shifted to the
ITT stockholders and away from Hilton if Hilton were to force ITT's
stockholders to decide on the Hilton proposal before the regulators have
to. Coffee Aff. PARA 23. Moreover, if the regulatory approvals take time,
there is even less reason for ITT's stockholders to make an immediate
decision in May. Coffee Aff. PARA 24.
<PAGE>
12
desire to have the meeting as early as possible). Coffee Aff.
PARAPARA 10-14, 16-20; Smith Aff. PARAPARA 8, 11; Crane
Aff. PARAPARA 11, 13. In fact, many companies have held their
annual meetings later than usual, or even postponed an annual
meeting that had already been scheduled, under similar
circumstances. Crane Aff. PARA 5, Ex. B.9
In short, additional time will likely lead to a greater
benefit to the stockholders. Smith Aff. PARAPARA 9, 12; Crane
Aff. PARA 6; Coffee Aff. PARAPARA 8-30. Additional time allows
the stockholders to receive and digest information concerning the
Offer, Hilton's plans for ITT, and ITT's plans. Crane Aff.
PARAPARA 6, 7, 10; Smith Aff. PARA 9, 12. Thus, with additional
time the
_________________
9That the Board's discretion to set stockholder meeting dates or to amend
existing by-laws (including in a way that affects the scheduling of
meetings) is not necessarily either a breach of contract or a breach of
fiduciary duty is also illustrated by the professional literature. For
example, a public memorandum prepared by prominent M&A counsel recommends
that companies with a by-law specifying a particular date for the annual
meeting should amend the by-laws to authorize the board to set an
alternative date, that the board should be authorized to postpone a
previously scheduled annual meeting and that by-laws should be amended to
eliminate any right of shareholders to call special meetings and to limit
the ability of stockholders to nominate individuals as directors or bring
other business before a meeting. See Heinz Aff., Ex. L. The model by-laws
attached to this memorandum (see id.) use the term "annual meeting" without
any indication that following the model would require meetings to be held
within 12 months of each other, a result that would obviously conflict with
the recommendation of deletion of any by- law providing for a specific
date.
<PAGE>
13
stockholders will be able to make a more informed decision as to
the real value of both ITT and the Hilton Transaction. Smith
Aff. PARAPARA 9, 12. Simply put, holding the annual meeting
later than May will benefit the stockholders' decision. Crane
Aff. PARA 14; Coffee Aff. PARAPARA 8, 23-25; Smith Aff.
PARA 12.10
ARGUMENT
Hilton's motion for an order requiring ITT to hold the
annual meeting in May 1997 is a request for a mandatory
preliminary injunction. See e.g., Stahl v. Apple Bancorp, Inc.,
579 A.2d 1115, 1120-21 (Del. Ch. 1990). Mandatory injunctive
relief is "subject to heightened scrutiny" (Dahl v. HEM
Pharmaceutical Corp., 7 F.3d 1399, 1403 (9th Cir. 1993) and is
"particularly disfavored under the law of this circuit".
Stanley v. University of S. Cal., 13 F.3d 1313, 1319-20 (9th Cir.
1994). Thus, contrary to Hilton's suggestion that it need only
meet the preliminary injunction burden (Pl. Br. at 14), Hilton's
burden on this motion is more
- -----------------
10The statement that "no delay is necessary" (Burch Aff. PARA 9) put forth
by Hilton's proxy solicitor lacks any support and should not be given any
weight. Similarly, Mr. Burch's purported legal interpretation of ITT's
By-laws (id. PARA 4) and the New York Stock Exchange requirements (id. PARA
5), as well as his speculations concerning the Board's motivations (id.
PARAPARA 7, 9, 10) and his speculation concerning the opinion of ITT's
proxy solicitor (id. PARA 12), should all be given no weight.
<PAGE>
14
onerous; Hilton must show that "the facts and law clearly favor
the moving party". Anderson v. United States, 612 F.2d 1112,
1114 (9th Cir. 1979).
Hilton does not, and cannot, sustain its burden.
I. HILTON HAS FAILED TO SHOW THAT ITT IS REQUIRED TO HOLD ITS
ANNUAL MEETING IN MAY.
Both the Nevada statutes and ITT's By-laws grant the Board
the power to establish the date of the annual meeting and to make
or amend the Company's By-laws, unless such actions would violate
the statutory scheme.11 There can be no argument here that the
Board's actions violate the statutory scheme. Indeed, the
statutory scheme, specifically NRS 78.345, shows that
stockholders have no argument that the directors' "term of
office" is only 12 months. This statute confirms that the By-
laws do not require a May meeting. See Section I.A, infra.
Moreover, Hilton has no vested right in the By-laws because the
Board can amend the By-laws. See Section I.B, infra.
_______________
11Although it would have been possible to adopt By-laws that set a specific
date for the annual meeting that is not subject to change by the Board,
even Hilton has not argued that Section 1.2 is such a By-law. Thus, ER
Holdings, Inc. v. Norton Co., 735 F. Supp. 1094 (D. Mass. 1990) (cited in
Pl. Br. at 3-4) is irrelevant. The Board's action in setting a meeting
date might also be subject to a breach of fiduciary duty argument. We show
in Section II why no such claim can be made here.
<PAGE>
15
A. ITT'S BY-LAWS DO NOT REQUIRE AN ANNUAL MEETING IN MAY
Virtually conceding that Nevada law gives the Board complete
discretion to set the meeting date, subject to the stockholders'
rights granted in NRS 78.345(1), Hilton tries to argue that ITT
has voluntarily limited the Board's discretion by adopting
By-laws that require that the annual meeting be held in May. Pl.
Br. at 4-5. Hilton is wrong.
Hilton does not cite any express ITT By-law that contains
this requirement. Nor can it, for there is no such provision.
As described above, Section 2.1 of the By-laws provides that the
Board shall manage the business and affairs of the corporation
and "may exercise all the powers of the corporation" with
exceptions that are inapplicable; Section 1.2 of the By-laws
provides that the annual meeting "shall be held at such place
(within or outside the State of Nevada), date and hour as shall
be determined by the Board"; Section 2.2 of the By-laws provides
that "[e]ach director shall hold office until the next annual
meeting of the stockholders"; and Section 13 of the By-laws
provides that the By-laws may be amended by the Board.
These By-laws track the statutory scheme, which confirms
that ITT's Board does not have to have a
<PAGE>
16
meeting in May. The statutory scheme should be considered in
construing the meaning of the By-laws. As the court held in In
re Delta Fin. Sers., Inc., No. 89-35552, 1990 WL 212665 at *5
(9th Cir. Dec. 18, 1990) (unreported):
"'[W]ords and other symbols must be interpreted in the light
of the surrounding circumstances; and the existing statutes
and rules of law are always among these circumstances.' 3
Corbin on Contracts Section 551, at 198 (1960); see also
Farmers and Merchants Bank v. Federal Reserve Bank, 262 U.S.
649, 660 (1923) ('Laws which subsist at the time and place
of the making of a contract, and where it is to be
performed, enter into and form a part of it, as fully as if
they had been expressly referred to or incorporated in its
terms.')"
That is especially so here because the By-laws track the statute
so closely. See pp. 5-7, supra.
Hilton's principal cases--Flagg and McCullough--show the
importance of viewing the relevant statute.12
_________________
12Hilton's reliance on Nevada ex rel. Flagg v. Board of Trustees, 4 Nev.
400 (1868) (Pl. Br. at 4, 6) is mystifying. In Flagg, the court interpreted
a Nevada statute that set forth a six-month term of office for the initial
directors named in the Certificate of Incorporation as requiring the
company to hold its first election of directors within six months of its
incorporation. Id. at 404-05. The court found that the directors could
not circumvent the explicit initial term of office set forth in the statute
by passing a by-law setting a later meeting date. Id. at 406-07. In other
words, the court held simply that the board could not pass a by-law to
avoid a statutory restriction. Hilton's other authority, Nevada ex rel.
Curtis v. McCullough, 3 Nev. 202 (1867), is to the same effect. In that
case the court, finding a statutory term of office of one year, held that
the board could not pass a by-law to avoid that statutory restriction.
However, there is no similar term of office provision-- either in ITT's
By-laws or in the statutes--that would require ITT to hold its annual
meeting in May.
<PAGE>
17
Here, NRS Section 78.330(1) provides that "[u]nless other-
wise provided in the by-laws, the board of directors have the
authority to set the date, time and place for the annual meeting
of the stockholders" and the term "annual meeting" is further
explicated by NRS Section 78.345(1), which provides that
eighteen months must pass without an election of directors at an
annual meeting pursuant to NRS Section 78.330 before
stockholders may petition to compel an annual meeting.13
The statutory scheme thus has decreed that the "term of
office" for a director under by-laws such as
_________________
13Given this clear language, it is not surprising that Hilton does not
argue that the statutory usage of "annual meeting" requires the election of
directors every twelve months. However, Hilton provides no rationale for
adopting an interpretation of the phrase "annual meeting" in ITT's By-laws
that would differ from the interpretation of that phrase in the statutes-
and, indeed, there is no such rationale.
<PAGE>
18
ITT's14 can, if the board so chooses, be eighteen months before a
stockholder can bring suit.15
_________________
14Hilton attempts to limit the reach of NRS 78.345 by noting that it
addresses annual meetings "required by 78.330" rather than annual meetings,
like ITT's, that are supposedly "mandated by a by-law provision". Pl. Br.
at 7. Hilton is wrong. All Nevada corporations, including ITT, must abide
by the terms of NRS 78.330 which mandate that: "Unless elected pursuant [to
the written consent statute], directors of every corporation must be
elected at the annual meeting of stockholders by a plurality of the votes
cast at the election." (emphasis added).
15Hilton's argument (Pl. Br. at 7) that NRS Section 78.345 is not the
exclusive remedy simply misses the point that it has no right to compel a
meeting. NRS Section 78.345 defines the statutory "term of office" and
establishes conditions to its enforcement. NRS Section 78.345 establishes
that ITT's stockholders have a right, upon petition by stockholders holding
15% or more of the voting power, to demand that the Board hold an annual
meeting once every 18 months. Hilton has not demonstrated, or even
attempted to demonstrate, any immediate threat that this right or any other
right will be violated. Unlike here, where Hilton has no right to a
meeting, the cases cited by Hilton in support of its argument that NRS
Section 78.345 is not the exclusive remedy all involve the enforcement of
an existing right and so are irrelevant. See Ocilla Indus., Inc. v. Katz,
677 F. Supp. 1291, 1301 (E.D.N.Y. 1987) (dated selected for annual meeting
would violate provision of New York law requiring annual meeting every 13
months); Silver v. Farrell, 450 N.Y.S.2d 938, 940-41 (N.Y. App. Div. 1982)
(statutory remedy not exclusive means to remedy failure to hold annual
meeting on date specified in by laws); Danaher Corp. v. Chicago Pneumatic
Tool Co., No. 86 Civ. 3499, 1986 WL 7001, *7 (S.D.N.Y. June 19, 1986)
(statutory remedy if meeting not held with thirteen months does not make
statutory provision allowing stockholder action by written consent
"redundant"). Hilton's citation (Pl. Br. at 7) of Double O Mining Co. v.
Simrak, 132 P.2d 605 (Nev. 1942), is misleading. First, the quote ("new
right") contained in Hilton's parenthetical (Pl. Br. at 7) does not appear
anywhere in the opinion. Second, in the section of the opinion cited by
Hilton, the court simply rejected the notion that it could read into the
statute equitable considerations not set forth in the statute. The court
did not hold, or even discuss whether, the statutory remedy was exclusive.
<PAGE>
19
Hilton's efforts to evade the clear meaning of the By-laws
are unavailing. Coffee Aff. PARA 31.
Specifically, Hilton argues that, since ITT held its last
annual meeting on May 14, 1996, certain provisions of ITT's
By-laws require, by inference, that the next annual meeting also
be held in May. Pl. Br. at 1, 4-5.16 Hilton is wrong.
Section 1.3 of the By-laws expressly establishes (and is titled)
the "Purposes of Annual Meetings". Hilton fails to advise the
Court that it is Section 2.2 of the By-laws, not Section 1.3,
that establishes (and therefore includes in its title) the "Terms
of Office of Directors". Once the proper section of the By-laws
(Section 2.2) is consulted, it is plain that, under ITT's
By-laws, Directors are elected to serve until the next annual
meeting.17
___________________
16Hilton argues that "Section 1.3 of the by-laws provides that the
directors' term of office is one 'year'. Case law confirms that the by-laws
mean what they say: ITT must hold an annual meeting for the election of
directors and any other proper business once every twelve months." Pl. Br.
at 1.
17Consistent with this provision of ITT's By-laws, the proxy materials for
the last annual meeting (the meeting at which the current directors were
elected) stated that the "directors are to be elected to hold office until
the next Annual Meeting of Shareholders and until their successors are
elected and qualified." See Heinz Aff., Ex. I at 6.
<PAGE>
20
Hilton also argues that, because ITT's By-laws use the word
"annual" to describe the regular meeting of the stockholders at
which the directors are to be elected, the By-laws require the
election of directors once every twelve months.18 This is wrong.
The phrase "annual meeting" is used in modern times to
distinguish regular meetings of stockholders from special
meetings of stockholders, rather than to impose a requirement
that the elections be held once every twelve months. Coffee Aff.
PARAPARA 32, 37-39. And the use of the phrase "annual meeting"
in ITT's By-laws was never intended to impose a limit on the
discretion of the Board of Directors to determine when, within
the limits set by applicable law, to hold the annual meeting.
Ward Aff. PARAPARA 3-4.19 As described above, the Nevada statute
__________________
18Hilton also argues that the provisions of Sections 1.3(b) and 2.2 of
ITT's By-laws, which require that stockholders submit director nominations
90 days in advance of the anniversary date of the last annual meeting,
require the meeting to be held in May. Hilton's logic does not follow,
and, obviously, if no other provision of the By-laws require that the
meeting be held in May, then these provisions cannot serve to establish
such a requirement.
19ITT believes that the By-laws unambiguously give the Board discretion in
scheduling the annual meeting and that the By-laws do not require an annual
meeting every twelve months. If, however, the Court finds the By- laws
ambiguous, parol evidence is properly admitted to resolve the ambiguity.
See Gramanz v. T-Shirts & Souvenirs, Inc., 894 P.2d 342, 347 (Nev. 1995);
Crank v. Nevada Indus. Comm'n, 675 P.2d 413, 415 (Nev. 1984).
<PAGE>
21
indicates that use of the phrase "annual meeting" plainly does
not in and of itself require that directors be elected every
twelve months. Coffee Aff. PARA 33.
Hilton bases its entire argument on Nevada ex rel. Curtis v.
McCullough, 3 Nev. 202 (1867) and its discussions of "annual".
In McCullough, the court, construing California law as it existed
in 1867, found that the legislative purpose of a statutory
requirement that directors be "annually elected" was to impose a
twelve month term of office. See id. at 224.20 The McCullough
court's interpretation of the word "annual" was against the
background of the statutes in existence at that time. In the
130 years since McCullough was decided, the corporate statutes of
both Nevada and California have been extensively revised. The
current Nevada statutory scheme clearly envisions that, absent a
contrary provision in the articles of incorporation or in the
by-laws, annual meetings need be held only once every 18 months.
When the Nevada Legislature passed the predecessor statute to
NRS 78.345 in 1925, it necessarily abrogated any prior judicial
holdings
_______________
20The court therefore held that the directors could not extend their
statutory term of office by amending, a few days before the required
meeting, a by-law provision that called for the annual meeting to be held
on the second Thursday of July. See id. at 226-27.
<PAGE>
22
that the use of the phrase "annual meeting" required the election
to occur once every twelve months.21 In fact, McCullough has
never subsequently been cited by any Nevada court for the
proposition advocated by Hilton. Moreover, adopting Hilton's
reasoning, and its reliance on McCullough's out-dated definition
of "annual meeting", would create an internal inconsistency in
NRS 78.345 since the statute, which uses the phrase "annual
meeting", clearly permits such a meeting to be held, if the board
so wishes, only once every 18 months.
Thus, Hilton asks this Court to interpret ITT's By-laws,
which were adopted in 1995, against the background of the
statutes and possible usage in existence 130 years ago rather
than against the background of the statutes and usage in
existence at the time those By-laws were adopted. Such a
suggestion should be rejected.
______________
21If McCullough were still good law, then the Legislature has passed a
meaningless statute. There is no need to pass a statute granting
stockholders the right to compel an election after 18 months (if they
represent at least 15% of the voting power of the shares) if, as Hilton
argues, a single stockholder (with less than 1% of the shares) already has
the right to compel an election after 12 months merely by virtue of the
words "annual" or "year", which appear in NRS 78.330(1) and are used in
most corporate by-laws.
<PAGE>
23
B. HILTON CANNOT HAVE ANY "VESTED RIGHT" IN THE BY-LAWS BECAUSE
THE BOARD CAN AMEND THE BY-LAWS
Hilton makes much of its argument that the By-laws
constitute a contract between the corporation and the stock-
holders. In addition to Hilton's difficulty with the fact that
the contract does not provide what Hilton claims, Hilton's
argument also ignores the fact that this "contract" is expressly
modifiable by the Board.
Kidsco Inc. v. Dinsmore, 674 A.2d 483 (Del. Ch.), aff'd, 670
A.2d 1338 (Del. 1995) is particularly instructive on this
point.22 In Kidsco, plaintiffs argued that the board's amendment
of a by-law to enlarge from 35 to 60 days the minimum time for
calling a special meeting was invalid because plaintiffs had a
"vested contract right" to enforce the prior by-law. 674 A.2d at
490.23 The defendants argued that the relevant by-law "was always
subject to amendment by the directors, whose power to do that was
limited only by the proper exercise of their fiduciary duties."
Id. at
_____________________
22See also Fischer v. C.J. Lawrence & Co., Inc., 481 F. Supp. 357, 361
(S.D.N.Y. 1979) (no vested right because on notice that Articles could be
amended).
23Plaintiffs also cited previous actions that they had taken in reliance on
the meeting date. Id. In response to plaintiffs' claim that the board's
power to amend was cut off by its detrimental reliance, the court held:
"Plaintiffs cite no authority that supports their vested rights claim."
Id. at 492.
<PAGE>
24
491. The court accepted defendants' argument and rejected
plaintiffs' contentions, noting that "[t]he difficulty with the
argument is that its 'vested right' premise is wrong." Id. at
492. The court held further:
"It is undisputed that the TLC certificate of incorporation
expressly authorizes the directors to amend or repeal the
by-laws without obtaining shareholder approval. Therefore,
although the by-laws are a contract between the corporation
and its stockholders (Centaur Partners, IV v. National
Intergroup, Inc., Del. Supr., 582 A.2d 923, 926 (1990)), the
contract was subject to the board's power to amend the
by-laws unilaterally." 674 A.2d at 492.
The court thus concluded that:
"this Court has held that where a corporation's by-laws put all
on notice that the by-laws may be amended at any time, no vested
rights can arise that would contractually prohibit an amendment."
Id.; see also Heinz Aff., Ex. F, at 42-45.
Here, just as in Kidsco, ITT's By-laws (as well as Nevada law)
plainly state that the Board may amend or repeal those By-laws at any
time. Hilton thus has "no vested rights . . . that would
contractually prohibit an amendment." 674 A.2d at 492. See Coffee
Aff. PARAPARA 34-36.
The Kidsco court also noted that, with an exception not relevant
here, "no 'contractual' right to maintain an existing by-law has ever
been recognized." Id. at 492 n.6. The two cases cited by Hilton (Pl.
Br. at 3-4) in support of its "contract" argument are not to the
contrary. In ER Holdings, Inc. v. Norton Co., 735 F. Supp. 1094 (D.
Mass.
<PAGE>
25
1990), the board's discretion to amend a by-law setting the "fourth
Tuesday of April" as the date for the annual meeting was expressly
limited by another by-law, which provided that "[n]o change in the
date of the annual meeting of stockholders may be made within sixty
days before the date fixed in these by-laws". Id. at 1098. The court
held that although the "meeting date arguably could have been changed
by the Board up until [60 days before the fourth Tuesday of April]",
the "Board's purported cancellation . . . only 28 days before the
scheduled annual meeting, was clearly beyond the limitation period
provided in the by-laws." Id. In other words, the board did not have
unlimited power to amend the by-laws.24 Similarly, in Centaur
Partners, IV v. National Intergroup, Inc., 582 A.2d 923 (Del. 1990),
which is cited in the passage from Kidsco quoted above, the by-laws
and the charter each specifically stated that a super majority vote of
the stockholders was required to amend the provision at issue. Id.
at 927. Once more, the board did not have unlimited power to amend
the by-laws. Id. at 925-26, 929.25
____________________
24So clear was the limitation on the board's power to amend that the
board's argument was that "it did not 'amend' the by-laws to 'change' the
meeting date." Id.
25None of the other cases cited by Hilton (Pl. Br. at 4) even addresses
whether stockholders have a contractual right to enforce by-laws that are
subject to amendment by the Board. Rotary Club v. Harry F. Shea & Co., 458
N.E.2d 1002 (Ill. App. Ct. 1983), and Delmarmo Assocs. v. New Jersey Eng'g.
& Supply
<PAGE>
26
The contrast between the restrictions placed on amendments in ER
Holdings and Centaur Partners and the broad authority granted the
Board under ITT's By-laws and Nevada law could not be sharper.
Hilton's contract argument simply fails to acknowledge the Board's
discretion under the By-laws and under Nevada law to modify those
By-laws, especially since the By-laws were never intended to impose a
requirement that the annual meeting be held exactly every twelve
months. Ward Aff. PARAPARA 3-4; Coffee Aff. PARA 36.
II. HILTON HAS FAILED TO SHOW THAT HOLDING THE ANNUAL MEETING LATER
THAN MAY 1997 WOULD CONSTITUTE A BREACH OF THE DIRECTORS'
FIDUCIARY DUTY
Hilton argues once again, based on Delaware law, that the Board
has breached its fiduciary duty. Specifically, Hilton argues that the
fact that the ITT Board has not yet
______________
Co., 424 A.2d 847 (N.J. Sup. Ct. App. Div. 1980), two cases cited
as "see also" (Pl. Br. at 4), are simply irrelevant and certainly do not
contradict the principle enunciated in Kidsco. Silver v. Farrell, 450
N.Y.S.2d 938 (N.Y. App. Div. 1982), involved a clear breach of the by-laws
(at 444), and there is no discussion of the Kidsco principles. The same is
true for Albert E. Touchet, Inc. v. Touchet, 163 N.E. 184, 188 (Mass.
1928). Nevada ex rel. Flagg involved breach of a statutory provision
rather than a by-law. Indeed, the trustee had not even adopted a by-law.
4 Nev. at 405. Similarly, Holly Sugar Corp. v. Buchsbaum, 1981 WL 1708 at
*4 (D. Colo 1981), Studebaker Corp. v. Allied Prods. Corp., 256 F. Supp.
173, 189 (W.D. Mich. 1966) and Penn-Texas Corp. v. Niles-Bement-Pond Co.,
112 A.2d 302, 304 (N.J. Sup. Ct. Ch. Div. 1955) all involve a breach of a
statute. Danaher Corp. v. Chicago Pneumatic Tool Co., No. 86 Civ. 3499,
1986 WL 7001, *13 (S.D.N.Y. June 19, 1986) is a fiduciary duty case, not a
contract case. And, from the opinion in Tullos v. Parks, 915 F.2d 1192
(8th Cir. 1990), it is simply impossible to determine the basis for the
court's decision, although clearly that case does not discuss the Kidsco
principles.
<PAGE>
27
set an annual meeting date constitutes a breach of fiduciary duty. Pl.
Br. at 8. Hilton is wrong for at least three reasons.26
First, even if Blasius Indus., Inc. v. Atlas Corp., 564 A.2d 651
(Del. Ch. 1988) accurately reflected Nevada law, which it does not,
Hilton has failed to prove that the board's "primary purpose" was to
interfere with the franchise. But that is what Hilton must prove to
invoke Blasius and the related cases.27 Although Hilton seeks to
impose the "compelling justification" test announced in Delaware in
Blasius, Hilton does not discuss or even cite Blasius in its brief,
even though counsel stressed its
__________________
26 As ITT has previously argued, actions taken in the face of a hostile
takeover attempt are, in Delaware, reviewed under the standards set forth
in Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985). See ITT
Opposition to Hilton's Preliminary Injunction Motion at 11-12; see also,
Heinz Aff., Ex. E at 8-13. Even Hilton does not argue that Unocal is the
law of Nevada, even though it cites the case (Pl. Br. at 13). Unocal is
not the law of Nevada.
27The cases that Hilton cites (Pl. Br. at 9-14) all rely (with the
exception of ER Holdings, which is a contract case) on the doctrine first
articulated in Schnell and then refined in Blasius as "a particularization
of the more general doctrine" articulated in Aprahamian, Schnell and
Lerman. See Kidsco, 674 A.2d at 495 (citing Stahl, 579 A.2d at 1122).
Similarly, the Danaher case likewise cites Schnell (1986 WL 7001, *13) as
does Holly Sugar (1981 WL 1708, *7). In Schnell and its progeny, "the
board action found to constitute inequitable conduct . . . had the effect .
. . of either (i) precluding effective shareholder action . . . or of (ii)
snatch[ing] victory from an insurgent slate on the eve of the noticed
meeting". Kidsco, 674 A.2d at 495-96 (citing Stahl, 579 A.2d at 1123).
<PAGE>
28
importance at the March 5, 1997 hearing. See Heinz Aff., Ex. A at 10,
20-21. Instead, Hilton simply jumps to the conclusion that, if the
annual meeting is not to be held when it was held last year, the Board
must demonstrate a "compelling justification." Pl. Br. at 13. This
is not the law. Hilton's failure to prove this "primary purpose" that
Hilton must prove before even Delaware courts will resort to the
"rarely applied" compelling justification standard (Williams v. Geier,
671 A.2d 1368, 1376 (Del. 1996)) means that its motion must be denied.
See Section II.A, infra.
Second, even if Blasius accurately reflected Nevada law, which it
does not, Blasius would be inapplicable under Delaware law because the
ITT Board has not set the meeting date. See Section II.B, infra.
Third, Hilton has not shown a breach of fiduciary duty under NRS
78.138(1). See Section II.C, infra.
A. HILTON CANNOT SHOW THAT THE "PRIMARY PURPOSE" OF ITT'S BOARD IS
TO INTERFERE WITH THE FRANCHISE
Hilton bears the burden of clearly demonstrating the Board's
"primary purpose" is to interfere with the franchise. See Williams v.
Geier, 671 A.2d 1368, 1376 (Del. 1996); Stahl v. Apple Bancorp, Inc.,
579 A.2d 1115, 1120 (Del. Ch. 1990). Instead of offering any proof,
Hilton resorts to baseless speculation concerning the Board's present
intentions and essentially argues that the only purpose for any delay
must be entrenchment. Such conclusory
<PAGE>
29
allegations cannot suffice, especially where Hilton seeks mandatory
relief that requires it to demonstrate that the law and facts are
clearly in its favor. Hilton's failure to make this showing is fatal
to its motion. Blasius Indus., Inc. v. Atlas Corp., 564 A.2d 651,
658, 660-61 (Del. Ch. 1988). See also Hershfang v. Knotter, 562
F. Supp 393, 399 (E.D. Va. 1983), aff'd, 725 F.2d 675 (4th Cir. 1984).
Unlike the cases that Hilton cites28, Hilton has not proved such
inequitable conduct. Indeed, in contrast to the speculation by an
uninformed affiant (Burch Aff. PARA 12), the
____________
28Hilton's authorities all involved situations where plaintiffs proved that
the board's challenged actions were designed to entrench the directors or
prevent an election. In Danaher Corp. v. Chicago Pneumatic Tool Co., No. 86
Cir. 3499, 1986 WL 7001, at *13 (S.D.N.Y. June 19, 1986), board cancelled
annual meeting only days after it was notified of a proxy contest, and
refused to call a shareholders special meeting, as it "would not cooperate
in steps that would lead to the enactment of bylaws 'that would strip the
board of directors of management'". In Holly Sugar Corp. v. Buchsbaum,
1981 WL 1708, at *7 (D. Colo. 1981), management refused to call a meeting
to rectify past election of directors that was conducted at meeting without
quorum. In Norfolk S. Corp. v. Conrail, Inc., Civ. Action Nos. 96-7167,
96-7350 (E.D. Pa. Dec. 17, 1996), the board refused to convene the already
scheduled special meeting until it was assured that it would have
sufficient proxies to assure approval of its proposal. In ER Holdings,
Inc. v. Norton Co., 735 F. Supp. 1094, 1098 (D. Mass. 1990), the bylaws
SPECIFIED exact day and time for the annual meeting, and did not permit
postponement in the manner attempted by board. In Shoen v. Amerco, 885 F.
Supp. 1332, 1344 (D. Nev. 1994), modified on other grounds, 1996 WL
904199(D. Nev. 1994), vacated by stip., (D. Nev. 1995), the board advanced
meeting date to truncate the time available to shareholders to wage a
proxy contest to have a new board elected. In Schnell v. Chris-Craft
Indus., Inc., 285 A.2d 437, 439 (Del. 1971), board advanced date of meeting
to impair efforts of those who intended to contest reelection of incumbent
management.
<PAGE>
30
Board has not even discussed whether Hilton's nominees would be
elected if the annual meeting were held in May rather than at some
later time. Araskog Aff. PARA 9; White Aff. PARA 5. Nor has the
Board sought any opinions, from its proxy solicitors or otherwise, on
that question. White Aff. PARA 5; Crane Aff. PARA 12. As already
discussed, ITT's Board is considering the many issues raised by
Hilton's hostile takeover attempt and ITT's ongoing refinement and
implementation of its strategic plan. Araskog Aff. PARAPARA 5, 8, 9;
White Aff. PARAPARA 4-5.
Under these circumstances, there is simply no justification for
(much less any evidence of) Hilton's speculation that the Board is
acting for the primary purpose of interfering with the stockholder
franchise. Indeed, as the courts have noted, the Board has the right
to take action to increase its bargaining power in tender offers.
E.g., Moran v. Household Int'l, Inc., 490 A.2d 1059, 1074 (Del. Ch.),
aff'd, 500 A.2d 1346 (Del. 1985) (upholding validity of rights plan
that deterred bidders but increased Board's flexibility). Moreover,
Hilton apparently wants to force early disclosure of ITT's ongoing
negotiations and other plans, even though disclosure of such
information is not required under the applicable law. E.g., 17 C.F.R.
Section 240.14d-101, Schedule 14D-9, Item 7, Instruction ("If no
agreement in principle has yet been reached, the possible
<PAGE>
31
terms of any transaction or the parties thereto need not be
disclosed").
Hilton's Blasius claims thus fail for lack of proof.
B. BLASIUS IS INAPPLICABLE BECAUSE THE ITT BOARD HAS NOT SET THE
MEETING DATE
ITT's Board has not yet decided when the next annual meeting of
ITT's stockholders should be held. White Aff. PARA 4. This fact is
likewise dispositive of Hilton's Blasius claim.
The failure to set a meeting date cannot constitute an
inequitable interference with the stockholder franchise. As Chancellor
Allen, the judge in Blasius, recognized in Stahl v. Apple Bancorp,
Inc., 579 A.2d 1115, 1123 (Del. Ch. 1990): "while postponement of a
noticed meeting will in some circumstances constitute an inequitable
manipulation, I can in no event see that the franchise process can be
said to be sufficiently engaged before the fixing of this meeting date
to give rise to that possibility." See also Kidsco Inc. v. Dinsmore,
674 A.2d 483, 495-96 (Del. Ch.), aff'd, 670 A.2d 1338 (Del. 1995).
In Stahl, Chancellor Allen confronted facts similar to those
before this Court -- with the exception that the defendant board in
Stahl had set a record date for the annual meeting (but not the date
of the annual meeting) and then rescinded the record date in face of
the hostile tender offer and accompanying proxy fight. Chancellor
Allen held
<PAGE>
32
that "deferring this company's annual meeting where no meeting date
had been set and no proxies solicited does not impair or imperil the
effective exercise of the franchise to any extent." Id. at 1122.
Here, the corporate franchise process has not been engaged in any
way -- the ITT Board has not even set the record date. As Chancellor
Allen confirmed in Stahl:
"In no sense can the decision not to call a meeting be likened to
kinds of board action found to have constituted inequitable
conduct relating to the vote. In each of these franchise cases
the effect of the board action--to advance (Schnell) or defer
(Aprahamian) a meeting; to adopt a bylaw (Lerman); or to fill
board vacancies (Blasius)--was practically to preclude effective
stockholder action (Schnell, Blasius, Lerman) or to snatch
victory from an insurgent slate on the eve of the noticed meeting
(Aprahamian). Here the election process will go forward at a
time consistent with the company's bylaws and with Section 211 of
our corporation law. Defendant's decision does not preclude
plaintiff or any other Bancorp shareholder from effectively
exercising his vote, nor have proxies been collected that only
await imminent counting. Plaintiff has no legal right to compel
the holding of the company's annual meeting under Section 211(c)
of the Delaware General Corporation Law, nor does he, in my
opinion, have a right in equity to require the board to call a
meeting now.
This view may be criticized as placing undue emphasis on the
formal act of fixing the date of the annual meeting. However,
that is an act of some dignity and significance. Once fixed that
date may be postponed at least in some circumstances. But, while
postponement of a noticed meeting will in some circumstances
constitute an inequitable manipulation, I can in no event see
that the franchise process can be said to be sufficiently engaged
before the fixing of this meeting date to give rise to that
possibility."29
_______________
29 At oral argument on Hilton's prior motion, Hilton's counsel attempted to
distinguish Stahl from the instant case
<PAGE>
33
Stahl, 579 A.2d at 1123 (citations omitted).
Recognizing that Stahl is fatal to its argument, Hilton
previously represented to this Court that "Stahl v. Apple
Bancorp, Inc., 579 A.2d 1115 (Del. Ch. 1990), is no longer good
authority".30 Counsel is wrong and knows it. Indeed, in 1995,
the Delaware Chancery Court in Kidsco found that the case before
it was "functionally indistinguishable from Stahl" and refused to
apply the Blasius standard. 674 A.2d at 496. On appeal, the
Delaware Supreme Court "affirmed [Kidsco] on the basis of and for
the reasons stated by the Court of Chancery in its well-reasoned
Memorandum Opinion". Heinz Aff., Ex. D. Thus, Stahl is good
law.31
__________________
on the ground that Delaware law requires an annual meeting only once every
13 months. Heinz Aff., Ex. A, at 54. Nevada law, however, gives
stockholders the limited right to compel an annual meeting no earlier than
18 months (NRS 78.345) and Hilton's counsel was mistaken in his statement
about the By-laws (see n.3, supra).
30See Hilton's Reply Memorandum in Support of Plaintiffs' Motion for
Preliminary Injunction and to Strike the Sader Affidavit, dated February
21, 1997 ("Reply Mem."), at 9 n.2.
31Hilton's current counsel of record was the counsel for the defendant in
Kidsco and relied on the holding in Stahl extensively in its briefing to
both the Chancery Court and the Delaware Supreme Court. See Heinz Aff.,
Ex. E at 12-13 and Ex. F at 23 n* & 27-30. Despite counsel's awareness of
the Kidsco decision, it is not cited in Hilton's brief on this motion.
Although the decision was cited in a brief filed in connection with one of
Hilton's other motions for a preliminary injunction, Hilton's statement
there that the target's board "temporarily postponed the holding of an
<PAGE>
34
Hilton in its latest brief attempts to distinguish Stahl.
Hilton is wrong. Neither attempted distinction (Pl. Br. at 14
n.5) is relevant to the Stahl and Kidsco holdings that failure to
set an election date cannot constitute a breach of Blasius;
neither attempted distinction disposes of Chancellor Allen's
"narrow ground that the action of deferring this company's annual
meeting where no meeting date has yet been set and no proxies
even solicited does not impair or impede the effective exercise
of the franchise to any extent." Stahl, 579 A.2d at 1123; see
also Kidsco, 674 A.2d at 496.
C. HILTON HAS FAILED TO SHOW A BREACH OF FIDUCIARY DUTY UNDER
NRS 78.138(1)
In enacting NRS 78.138(1), the Nevada Legislature
considered, and rejected, any requirement that directors must
exercise their powers pursuant to a "reasonably prudent director"
standard of care.32 Under
____________________
annual meeting" (Pl. Prelim. Inj. Br. at 14 fn*) is incorrect. The meeting
was not an "annual meeting"; it was a special meeting called by a hostile
offeror to replace the directors of the target, who had approved a merger
with a third party, to be held two days after stockholders voted on the
proposed merger. Kidsco, 674 A.2d at 485. In response, the target's board
amended the by-laws to allow additional time between the meetings. Id.
The court, citing Stahl, rejected the Blasius claim because the board had
not yet fixed the special meeting date. Id. at 496.
32See ITT's Memorandum in Opposition to Hilton's Motion for a Preliminary
Injunction ("ITT Opp."), dated February 14, 1997, at 13-14; Affidavit of
Robert M. Sader ("Sader Aff.")
<PAGE>
35
Nevada law, the only pertinent inquiry here is whether the
directors are exercising their power to establish the date of the
annual meeting, "in good faith and with a view to the interests
of the corporation". NRS 78.138(1). The enactment of NRS
78.138(1) in 1991 erased the objective reasonable director
standard from Nevada law. As one commentator explained:
"Unlike most states, no objective standard of care, such as
an ordinarily prudent person standard is imposed [in
Nevada]. . . . The statute does not explicitly require that
the director have a reasonable belief that she is acting in
the interests of the corporation. Therefore, the requirement
appears to be subjective."
Keith P. Bishop, Nevada Corporation Law & Practice, Section 7.15 at
173-74 (1993).33 Thus, pursuant to the plain language
_________________
(submitted therewith) at PARAPARA 9 and 16. Compare WLR Foods, Inc. v.
Tyson Foods, Inc., 65 F.3d 1172, 1184-85 (4th Cir. 1995), cert. denied, 116
S. Ct. 921 (1996) (holding that "[d]irectors' actions in Virginia are not
to be judged for their reasonableness" based on a statute similar to NRS
Section 78.138(1)).
33Hilton's claim in its Reply Memorandum in Support of Hilton's Motion to
Strike the Sader Affidavit (at 4), that Bishop's commentary supports its
position, is wrong. The discussion in Bishop quoted by Hilton is based on
cases decided prior to the 1991 amendments to Nevada's corporate law. See
Bishop, Section 7.15 at 176 (citing to cases decided in 1987, 1975, 1930
and 1939). Contrary to Hilton's argument (Reply Mem. at 10), moving the
relevant subjective standard from a provision dealing solely with
Directors' duties regarding interested transactions to a new provision
governing the Directors' duties in general marked a change in Nevada
corporate law rendering cases decided prior to 1991 inapposite. The
Legislature explicitly considered, and rejected, the standards argued for
by Hilton. See Sader Aff. PARAPARA 5, 8, 9.
<PAGE>
36
and intent of NRS 78.138(1), "the directors of a corporation violate
no duty to the corporation so long as they have acted in subjective
good faith with the interests of the corporation in mind." Sader Aff.
PARA 9.
Hilton's reliance on Shoen v. Amerco, 885 F. Supp. 1332 (D. Nev.
1994), is unavailing. Contrary to Hilton's assertion (Heinz Aff., Ex.
A at 51), ITT does not need to claim that Shoen is wrongly decided.
See id. at 45-46. In Shoen, Judge Reed expressly found that the board
had acted in bad faith. 885 F. Supp. at 1343-44. The conduct thus
violated NRS 78.138(1).34 However, the court did not address
NRS 78.138(1) and applied Delaware law. See 885 F. Supp. at 1340-41 &
n.20; see also Heinz Aff., Ex. A at 41, 46-48.35 ITT does assert,
however, that Blasius, with its concept of the "unintended" breach of
the duty of loyalty, is not the law of Nevada. Heinz Aff., Ex. A at
47.
________________
34In Shoen, the court found bad faith because the incumbent board advanced
the date of the annual meeting to impede shareholder's efforts to circulate
proxy material to elect a new board. 885 F. Supp. at 1342. Here there is
no proof of bad faith and the Board has not set a meeting date.
35In footnote 22 of the Shoen opinion, Judge Reed does discuss other
provisions of NRS 78.138 and notes the broad discretion given directors in
resisting a hostile takeover. 885 F. Supp. at 1341 n.22. Contrary to
counsel's assertions on March 5, 1997 (Heinz Aff. Ex. A at 22), the Shoen
briefs cited by Judge Reed do not seem to have brought to the Court's
attention NRS 78.138(1). See Heinz Aff., Exs. G & H.
<PAGE>
37
Hilton cannot make out a breach of NRS 78.138(1). Hilton attempts
to argue that bad faith is present in this case. Specifically, Hilton
speculates that ITT's Board is trying to entrench itself (Pl. Br.
at 1, 2, 8, 15; Burch Aff. PARA 10) and that there is no other reason
for holding the annual meeting later than May (Pl. Br. at 13-14, 16;
Burch Aff. PARA 9). Hilton is wrong.
In contrast to Hilton's unsupported speculation, ITT has shown
that there are, in fact, reasons why holding the annual meeting later
than May would be in the best interests of the corporation, its
stockholders and its other constituencies. Crane Aff. PARA 6; Araskog
Aff. PARAPARA 4-5; Smith Aff. PARAPARA 4-9, 12; Coffee
Aff. PARAPARA 8-30. It is those factors that are motivating the
Board's actions rather than any desire for entrenchment. Araskog Aff.
PARAPARA 9-10; White Aff. PARAPARA 5-6. Thus, the evidence
demonstrates that ITT's Board is acting in good faith and with a view
to the interests of the corporation, its stockholders and its other
constituencies.
III. HILTON CANNOT DEMONSTRATE AN IMMEDIATE THREAT OF
IRREPARABLE HARM
Hilton neglects to allege any threatened injury that it itself
will sustain as a result of the later scheduling of the meeting. This
is because Hilton cannot. As Hilton has not yet obtained financing
for the Offer, there is no risk that financing obtained will expire.
Crane Aff. PARA 9. As no record date, much less a meeting date, has
been announced,
<PAGE>
38
Hilton cannot complain that it has reasonably expended any money in
anticipation of a May meeting. Id. The proxies, on their face, state
that they are valid for one year or until the anniversary date of the
last annual meeting, and thus there is no risk that the proxies will
expire. Id.; cf. Aprahamian v. HBO & Co., 531 A.2d 1204, 1208 (Del.
Ch. 1987) (if annual meeting were postponed for several months,
proxies would become void). Moreover, a later meeting would in no way
prevent Hilton from having time to present its views to the ITT
stockholders. Crane Aff. PARA 9. Indeed, Hilton has itself publicly
stated that a later meeting would not preclude Hilton's Offer. See
Heinz Aff., Ex. C at 6; see also Smith Aff. PARA 10.
Hilton does claim that an injunction must issue in order to
prevent the frustration of the ITT stockholders' vote. Pl. Br. at 14-
15. Hilton is wrong. The court in Stahl clearly stated that where no
meeting date had yet been set and no proxies solicited, the effective
exercise of the franchise was not impeded or impaired to any extent by
scheduling the meeting at a later time. Stahl, 579 A.2d at 1123.
Moreover, the authority relied upon by Hilton to support its
contention is plainly inapposite. In both Shoen v. Amerco, 885
F. Supp. 1332 (D. Nev. 1994), and International Banknote Co., Inc. v.
Muller, 713 F. Supp 612, 623 (S.D.N.Y. 1989), those waging a proxy
contest suddenly
<PAGE>
39
found that their time to do so had been drastically truncated.36
Here, to the contrary, the extra time will enable the ITT Board to
provide the stockholders with more information than they would
otherwise receive if the meeting were held in May 1997.
In fact, Hilton wants the meeting held in May 1997 so that it can
appropriate value for itself from ITT's stockholders before ITT's
stockholders can fully assess or realize the value of their
investment. Smith Aff. PARAPARA 8, 11; Coffee Aff. PARAPARA 11-20;
Crane Aff. PARA 11. Simply put, Hilton wants to steal value from the
ITT stockholders. Indeed, Hilton cannot plausibly argue that the ITT
stockholders have an interest in holding the meeting in May, as both
analysts and the market have clearly indicated that Hilton's offer
price is too low. Smith Aff. PARAPARA 7-8; Coffee Aff. PARAPARA 17,
19; Crane Aff. PARA 12.
Quite simply, Hilton fails to allege any threat of immediate
injury because none exists. Moreover, not only will Hilton suffer no
injury, but its concern for any injury
___________________
36Nor is this a case where the board has taken "extreme" action that would
inevitably result in irreparable harm to the stockholders. Danaher Corp.
v. Chicago Pneumatic Tool Co., No. 86 Civ. 3499, 1986 WL 7001 at *13
(S.D.N.Y. June 19, 1986). No proxies have been solicited, and the board
did not cancel the meeting either days after learning of Hilton's intent to
acquire control of the ITT board, Danaher, 1986 WL 7001 at *13, or days
before the meeting was to occur. Aprahamian v. HBO & Co., 531 A.2d 1204
(Del. Ch. 1987).
<PAGE>
40
the ITT stockholders would allegedly sustain is disingenuous. Hilton is
wearing "two hats" in its request for extreme relief. Coffee Aff. PARAPARA
13, 21. Hilton's financial interest in bettering its chances of success at
an inadequate price is far greater than its interest in protecting the
stockholders from any alleged threat of disenfranchisement.
Indeed -- Hilton's "struggle to control [ITT] is at the very root of
[Hilton's] action. [Hilton] is not merely an unhappy shareholder; rather
[it] is also a tender offeror who is seeking to gain control of the
company." Hilton's interests are thus "manifestly antagonistic". Baron v.
Strawbridge & Clothier, 646 F. Supp. 690, 695 (E.D. Pa. 1986).
CONCLUSION
For all of the reasons set forth above, ITT respectfully requests
that the Court deny Hilton's motion.
DATED this 13th day of March, 1997.
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>
41
CERTIFICATE OF SERVICE
Pursuant to Fed. R. Civ. P. 5(b), I hereby certify that
service of the foregoing ITT'S MEMORANDUM IN OPPOSITION TO HILTON'S
MOTION FOR A PRELIMINARY INJUNCTION REQUIRING ITT TO CONDUCT ITS
ANNUAL MEETING IN MAY 1997 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, Nevada 89101
and by delivering by regular U.S. mail 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, New York 10019
DATED this 13th day of March, 1997.
/s/ Elizabeth Moulton
------------------------------
An Employee of Kummer Kaempfer
Bonner & Renshaw
<PAGE>
TABLE OF CONTENTS Page
----
Preliminary Statement . . . . . . . . . . . . . . . . . . . . . . 2
Statement of Facts . . . . . . . . . . . . . . . . . . . . . . . 3
A. Hilton's Tender Offer and ITT's Response . . . . . . . . 3
B. ITT's By-laws and the Nevada Statutory Scheme . . . . . 5
C. ITT's 1997 Annual Meeting . . . . . . . . . . . . . . . 7
Argument . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
I. HILTON HAS FAILED TO SHOW THAT ITT IS REQUIRED TO HOLD ITS
ANNUAL MEETING IN MAY . . . . . . . . . . . . . . . . . . 11
A. ITT's By-laws Do Not Require an Annual Meeting in May . 12
B. Hiltong Cannot Have Any "Vested Right" in the By-laws
Because the Board Can Amend the By-laws . . . . . . . . 17
II. HILTON HAS FAILED TO SHOW THAT HOLDING THE ANNUAL MEETING
LATER THAN MAY 1997 WOULD CONSTITUTE A BREACH OF THE
DIRECTORS' FIDUCIARY DUTY . . . . . . . . . . . . . . . . 21
A. Hilton Cannot Show That the "Primary Purpose" of ITT"s
Board Is to Interfere With the Franchise . . . . . . . 22
B. Blasius Is Inapplicable Because the ITT Board Has Not
Set the Meeting Date . . . . . . . . . . . . . . . . . 24
C. Hilton Has Failed to Show a Breach of Fiduciary Duty
Under NRS 78.138(1) . . . . . . . . . . . . . . . . . . 27
III. HILTON CANNOT DEMONSTRATE AN IMMEDIATE THREAT OF IRREPARABLE
HARM . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . 32
<PAGE>
TABLE OF AUTHORITIES
Page
----
Albert E. Touchet, Inc. v. Touchet, 163 N.E. 184
(Mass. 1928) . . . . . . . . . . . . . . . . . . . . . . . 20
Anderson v. United States, 612 F.2d 1112 (9th Cir.
1979) . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Aprahamian v. HBO & Co., 531 A.2d 1204 (Del. Ch.
1987) . . . . . . . . . . . . . . . . . . . . . . . . . . 21, 30, 31
Baron v. Strawbridge & Clothier, 646 F. Supp. 690
(E.D. Pa. 1986) . . . . . . . . . . . . . . . . . . . . . 32
Blasius Indus., Inc. v. Atlas Corp., 564 A.2d 651
(Del. Ch. 1988) . . . . . . . . . . . . . . . . . . . . . 21, 22, 24,
26, 28
Centaur Partners, IV v. National Intergroup, Inc.,
582 A.2d 923 (Del. 1990) . . . . . . . . . . . . . . . . . 20
Crank v. Nevada Indus. Comm'n, 675 P.2d 413 (Nev.
1984) . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Dahl v. HEM Pharmaceuticals Corp., 7 F.3d 1399 (9th
Cir. 1993) . . . . . . . . . . . . . . . . . . . . . . . . 11
Danaher Corp. v. Chicago Pneumatic Tool Co., No. 86
Civ. 3499, 1986 WL 7001 (S.D.N.Y. June 19, 1986) . . . . . 14, 20, 21,
22, 30, 31
Delmarmo Assocs. v. New Jersey Eng'g. & Supply Co.,
424 A.2d 847 (N.J. Super. Ct. App. Div. 1980) . . . . . . 20
In re Delta Fin. Servs., Inc., No. 89-35552, 1990 WL
212665 (9th Cir. Dec. 18, 1990) . . . . . . . . . . . . . 13
Double O Mining Co. v. Simrak, 132 P.2d 605 (Nev.
1942) . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ER Holdings, Inc. v. Norton Co., 735 F. Supp. 1094
(D. Mass. 1990) . . . . . . . . . . . . . . . . . . . . . 12, 19, 20,
21, 23
Fischer v. C.J. Lawrence & Co., Inc., 481 F. Supp.
357 (S.D.N.Y. 1979) . . . . . . . . . . . . . . . . . . . 18
Gramanz v. T-Shirts & Souvenirs, Inc., 894 P.2d 342
(Nev. 1995) . . . . . . . . . . . . . . . . . . . . . . . 16
<PAGE>
Page
----
Hershfang v. Knotter, 562 F. Supp. 393 (E.D. Va.
1983), aff'd, 725 F.2d 675 (4th Cir. 1984) . . . . . . . . 22
Holly Sugar Corp. v. Buchsbaum, 1981 WL 1708 (D.
Colo. 1981) . . . . . . . . . . . . . . . . . . . . . . . 20, 21, 23
International Banknote Co., Inc. v. Muller, 713
F. Supp. 612 (S.D.N.Y. 1989) . . . . . . . . . . . . . . . 30
Kidsco Inc. v. Dinsmore, 674 A.2d 483 (Del. Ch.),
aff'd 670 A.2d 1338 (Del. 1995) . . . . . . . . . . . . . 18, 19, 20,
24, 26, 27
Lerman v. Diagnostic Data, Inc. 421 A.2d 906 (Del.
Ch. 1980) . . . . . . . . . . . . . . . . . . . . . . . . 21
Moran v. Houshold Int'l, Inc. 490 A.2d 1059 (Del.
Ch.), aff'd, 500 A.2d 1346 (Del. 1985) . . . . . . . . . 23
Nevada ex rel. Curtis v. McCullough, 3 Nev. 202
(1867) . . . . . . . . . . . . . . . . . . . . . . . . . . 13, 16, 17
Nevada ex rel. Flagg v. Board of Trustees, 4 Nev. 400
(1868) . . . . . . . . . . . . . . . . . . . . . . . . . . 13, 20
Norfolk S. Corp. v. Conrail, Inc., Civil Action Nos.
96-7167, 96-7350 (E.D. Pa. Dec. 17, 1996) . . . . . . . . 23
Ocilla Indus., Inc. v. Katz, 677 F. Supp. 1291
(E.D.N.Y. 1987) . . . . . . . . . . . . . . . . . . . . . 14
Penn-Texas Corp. v. Niles-Bement-Pond Co., 112 A.2d
302 (N.J. Sup. Ct. Ch. Div. 1955) . . . . . . . . . . . . 20
Rotary Club v. Harry F. Shea & Co., 458 N.E.2d 1002
(Ill. App. Ct. 1983) . . . . . . . . . . . . . . . . . . . 20
Schnell v. Chris-Craft Indus., Inc., 285 A.2d 437
(Del. 1971) . . . . . . . . . . . . . . . . . . . . . . . 21, 23
Shoen v. Amerco, 885 F. Supp. 1332 (D. Nev. 1994),
modified on other grounds, 1996 WL 904199 (D. Nev.
1994), vacated by stip., (D. Nev. 1995) . . . . . . . . . 23, 28, 30
<PAGE>
Page
Silver v. Farrell, 450 N.Y.S.2d 938 (N.Y. App. Div.
1982) . . . . . . . . . . . . . . . . . . . . . . . . . . 14,20
Stahl v. Apple Bancorp, Inc., 579 A.2d 1115 (Del.
Ch. 1990) . . . . . . . . . . . . . . . . . . . . . . . . 11, 22, 24,
25, 26, 27,
30
Stanley v. University of S. Cal., 13 F.3d 1313 (9th
Cir. 1994) . . . . . . . . . . . . . . . . . . . . . . . . 11
Studebaker Corp. v. Allied Prods. Corp., 256 F. Supp.
173 (W.D. Mich. 1966) . . . . . . . . . . . . . . . . . . 20
Tullos v. Parks, 915 F.2d 1192 (8th Cir. 1990) . . . . . . 20
Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946
(Del. 1985) . . . . . . . . . . . . . . . . . . . . . . . 21
Williams v. Geier, 671 A.2d 1368 (Del. 1996) . . . . . . . 22
WLR Foods, Inc. v. Tyson Foods, Inc., 65 F.3d 1172
(4th Cir. 1995), cert. denied, 116 S. Ct. 921 (1996) . . . 27
Statutes and Other Authorities
17 C.F.R. Section 240.14d-101 . . . . . . . . . . . . . . 24
NRS 78.120 . . . . . . . . . . . . . . . . . . . . . . . . 5, 7
NRS 78.138 . . . . . . . . . . . . . . . . . . . . . . . . 5, 7
NRS 78.330 . . . . . . . . . . . . . . . . . . . . . . . . 7, 8,
27, 28, 29
NRS 78.345 . . . . . . . . . . . . . . . . . . . . . . . . 5, 13, 14,
17, 26
Keith P. Bishop, Nevada Corporation Law & Practice
(1993) . . . . . . . . . . . . . . . . . . . . . . . . . . 28
