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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 14D-9
(AMENDMENT NO. 1)
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
AMERICAN BANKERS INSURANCE
GROUP, INC.
(NAME OF SUBJECT COMPANY)
AMERICAN BANKERS INSURANCE
GROUP, INC.
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $1.00 PER SHARE,
INCLUDING THE ASSOCIATED SERIES A PARTICIPATING PREFERRED STOCK PURCHASE RIGHTS
(TITLE OF CLASS OF SECURITIES)
24456 10 5
(CUSIP NUMBER OF CLASS OF SECURITIES)
GERALD N. GASTON
VICE CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
AMERICAN BANKERS INSURANCE GROUP, INC.
11222 QUAIL ROOST DRIVE
MIAMI, FL 33157-6596
(305) 253-2244
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE
NOTICE AND COMMUNICATIONS ON BEHALF OF PERSON(S) FILING STATEMENT)
------------------------
COPIES TO:
<TABLE>
<S> <C>
MORTON A. PIERCE, ESQ. JOSEPHINE CICCHETTI, ESQ.
JONATHAN L. FREEDMAN, ESQ. JORDEN BURT BERENSON & JOHNSON LLP
DEWEY BALLANTINE LLP 777 BRICKELL AVENUE, SUITE 500
1301 AVENUE OF THE AMERICAS MIAMI, FL 33131
NEW YORK, NY 10019 (305) 371-2600
(212) 259-8000
</TABLE>
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This Amendment No. 1 amends and supplements the Solicitation/Recommendation
Statement on Schedule 14D-9, dated February 6, 1998 (the "Schedule 14D-9") of
American Bankers Insurance Group, Inc., a Florida corporation (the "Company"),
filed in connection with the Cendant Offer. Capitalized terms used herein shall
have the definitions set forth in the Schedule 14D-9 unless otherwise provided
herein.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
The response to Item 8 is hereby amended and supplemented as follows.
Litigation
On February 9, 1998, the Company filed a motion to dismiss the amended
complaint filed by Cendant and Purchaser (the "Motion to Dismiss"). In the
Motion to Dismiss, the Company argues that plaintiff's claims under Sections
14(a) and (e) of the Exchange Act fail to state a claim upon which relief may be
granted. The Company further argues that plaintiffs' state law claims should be
dismissed because (i) plaintiffs were not shareholders at the time the events
giving rise to their claims for breach of fiduciary duty occurred, and they thus
lack standing to sue; (ii) the amended complaint fails to allege with
particularity exceptional circumstances that would excuse plaintiffs from making
a pre-suit demand, required under both Florida and federal law; and (iii)
plaintiffs are not proper or adequate representatives of the entire class of
shareholders whose interests they purport to protect.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
Exhibit 20...............Motion to Dismiss Amended Complaint filed in
Cendant Corporation et. al. v. American Bankers
Insurance Group, Inc., et al., Civil Action No.
98-0159 (Moore).
<PAGE> 3
SIGNATURE
After reasonable 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.
AMERICAN BANKERS INSURANCE GROUP, INC.
By: /s/ GERALD N. GASTON
---------------------------------------
Name: Gerald N. Gaston
Title: Chief Executive Officer,
President and Vice Chairman
Date: February 9, 1998
<PAGE> 1
Exhibit 20
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF FLORIDA
MIAMI DIVISION
CENDANT CORPORATION and
SEASON ACQUISITION CORP.,
Plaintiffs,
Case No. 98-0159-CIV-MOORE
- v. - Magistrate Judge Johnson
AMERICAN BANKERS INSURANCE GROUP,
INC.; GERALD N. GASTON; R. KIRK LANDON;
EUGENE M. MATALENE, JR.; ARMANDO
CODINA; PETER J. DOLARA; JAMES F. JORDEN;
BERNARD P. KNOTH; ALBERT H. NAHMAD;
NICHOLAS J. ST. GEORGE; ROBERT C. STRAUSS;
GEORGE E. WILLIAMSON II; DARYL L. JONES;
NICHOLAS A. BUONICONTI; JACK F. KEMP;
AMERICAN INTERNATIONAL GROUP, INC.; and
AIGF, INC.,
Defendants.
- --------------------------------------------/
MOTION AND MEMORANDUM OF LAW OF
AMERICAN BANKERS DEFENDANTS IN SUPPORT OF
THEIR MOTION TO DISMISS THE AMENDED COMPLAINT
Defendants American Bankers Insurance Group, Inc. ("American
Bankers" or the "Company"), Gerald N. Gaston, R. Kirk Landon, Eugene M.
Matalene, Jr., Armando Codina, Peter J. Dolara, James F. Jorden, Bernard P.
Knoth, Albert H. Nahmad, Nicholas J. St. George, Robert C. Strauss, George E.
Williamson II, Daryl L. Jones, Nicholas A. Buoniconti, and Jack F. Kemp
(collectively the "American Bankers
<PAGE> 2
Defendants") respectfully move this Court, pursuant to Rules 12(b)(6) and 23.1
of the Federal Rules of Civil Procedure, for an order dismissing the Amended
Complaint in its entirety on the grounds, inter alia, that (a) plaintiffs'
federal securities law claims fail to state a claim on which relief may be
granted; (b) plaintiffs lack standing to pursue their state law claims; and (c)
plaintiffs' state law claims fail to comply with the requirements of Fed. R.
Civ. P. 23.1. Alternatively, because this Court lacks diversity jurisdiction
over plaintiffs' state law claims, it may, in the event plaintiffs' federal
securities law claims are dismissed, simply decline to exercise supplemental
jurisdiction over them.
PRELIMINARY STATEMENT
On January 27, 1998, plaintiffs Cendant Corporation
("Cendant") and Season Acquisition Corp. ("Season") commenced a hostile tender
offer for 51% of American Bankers shares and proposed a second step merger with
the ultimate objective of acquiring the entire equity interest in American
Bankers. Plaintiffs simultaneously commenced this action asserting that the
American Bankers Defendants had breached their fiduciary duties to American
Bankers shareholders by agreeing to merge, over a month earlier (on December 21,
1997), with American International Group, Inc. ("AIG") -- one of the world's
largest and most reputable insurance companies -- in a transaction having a
value to the American Bankers shareholders of $2.2 billion.
Plaintiffs' seven count amended complaint alleges a laundry
list of problems with the terms of the merger agreement between American Bankers
and AIG and asserts that the proxy materials furnished to American Bankers'
shareholders are false and misleading. None of these alleged claims has any
merit. The Board's decision to merge with AIG -- which, of course, was made
before Cendant surfaced with its
2
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hostile offer -- is accorded substantial deference under Florida law and
reflected the Board's business judgment that a merger with AIG was in the best
interests of American Bankers and its shareholders and policyholders; moreover,
on March 6, 1998, American Bankers' shareholders will vote on the AIG merger
agreement and will thus have an opportunity to express their views on the
proposed merger with AIG and whether they prefer a proposed merger with Cendant.
Cendant is currently engaged in an aggressive and very public proxy campaign to
persuade American Bankers shareholders to vote against the AIG merger.
This Court need not, however, reach the merits because the
complaint can be dismissed on a threshold ground: plaintiffs were not
shareholders of American Bankers at the time of the conduct that they assert
constitutes a breach of fiduciary duty. According to its own public filings,
Cendant became a shareholder of American Bankers on January 16, 1998 -- nearly a
month after the conduct it alleges as a breach of fiduciary duty. It is
axiomatic that a corporation and its directors owe fiduciary duties only to
shareholders, not to bidders or tender offerors. Cendant was not an American
Bankers shareholder on December 21, 1997 and did not become an American Bankers
shareholder until January 16. Thus, it purchased its shares with full knowledge
of the AIG merger agreement and lacks standing to assert that American Bankers
Board breached any duty to it because no such duty existed.
Furthermore, even a cursory review of the complaint reveals
that any alleged injury to Cendant is the same as that suffered by other
shareholders. Thus, the complaint is derivative in nature and must comply with
the Rule 23.1 of the Federal Rules of Civil Procedure. It does not. The
complaint is not verified, fails to allege
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(because it cannot) that Cendant or Season were shareholders at the time of the
transactions about which they complain, and fails to describe with particularity
the steps taken to make demand on American Bankers. Critically, Cendant also
fails to satisfy the requirement that it be an adequate derivative plaintiff.
Cendant -- a bidder that seeks to obtain the company for as cheaply as possible
- -- does not "fairly and adequately" represent the interests of American Bankers'
shareholders -- some of whom may undoubtedly wish to receive as much as possible
for their shares.
STATEMENT OF FACTS
THE PARTIES
American Bankers is a specialty insurance company organized
under the laws of Florida and having its principal place of business in Miami.
Its main lines of business are in the areas of credit-related insurance
products. American Bankers provides affordable specialty insurance products and
services to a segment of the population which is underserviced by the insurance
industry. It concentrates on marketing through financial institutions, retailers
and other entities offering consumer financing as a regular part of their
business.
With the exception of Chairman R. Kirk Landon and President
and CEO Gerald N. Gaston, American Bankers' Board is comprised of
non-management, independent directors, including:
- Eugene M. Matalene, Jr., who is a Managing Director of the
investment banking firm Furman Selz LLC and a former Managing
Director of PaineWebber Incorporated;
- Armando Codina, who is Chairman of the Board of a real estate
development company, Codina Group Inc., and a director of
Winn-Dixie Stores, Inc., Bell South Corporation, AMR, Inc. and
FPL Group Inc.;
4
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- Peter J. Dolara, Senior Vice President of American Airlines;
- James F. Jorden, Senior Managing Partner of the law firm of
Jorden Burt Berenson & Johnson LLP;
- Bernard P. Knoth, President of Loyola University in New
Orleans;
- Albert H. Nahmad, who is President, Chairman and CEO of Watsco
Inc., the nation's largest distributor of residential central
air conditioners, as well as a member of the Panama Canal
Commission, the Florida Council of 100, and Chairman of the
Board of Directors of the Miami Children's Hospital
Foundation;
- Nicholas J. St. George, who is President and CEO of Oakwood
Homes Corporation and a director of the investment banking
firm, Legg Mason, Inc.;
- Robert C. Strauss, who is President and Chief Operating
Officer of the generic drug manufacturer, Ivax Corporation,
and the former Chairman, President and CEO of Cordis
Corporation;
- George E. Williamson II, who is President of Williamson
Cadillac Company and a director of Northern Trust Bank of
Florida, N.A.;
- Daryl L. Jones, State of Florida Senator and a former Senior
Vice President of the municipal bond underwriter, Douglas
James Securities;
- Nicholas A. Buoniconti, Vice Chairman, Chief Operating Officer
and Director of Columbia Laboratories, Inc., which is engaged
in pharmaceutical research and development;
- Jack F. Kemp, former United States Congressman and Secretary
of the U.S. Department of HUD, now Co-Director of Empower
America, a public think-tank, and a director of a number of
companies, including Carson Products Company, Oracle, Proxicom
and Everen Securities; and
- William H. Allen (not named as a defendant), who is Vice
Chairman of NationsBank, N.A. and the former Chairman and CEO
of Intercontinental Bank in Miami.
All in all, an extremely impressive, diversified and experienced group
of businessmen.
5
<PAGE> 6
Defendant AIG is a holding company organized under Delaware
law having its principal place of business in New York. Through its subsidiaries
AIG is primarily engaged in a broad range of insurance and insurance-related
activities and financial services in the United states and abroad. AIG's general
insurance operations are among the largest in the United States, and its
international property-casualty network and life insurance operations are the
most extensive of any U.S.-based insurance holding company. AIG is one of the
largest and most reputable insurers in the world, having received Triple-A
ratings from the principal ratings agencies, Moody's and Standard & Poor's.(1)
Plaintiff Cendant is a corporation recently formed under
Delaware law with its principal place of business in New Jersey. Cendant was
created in December 1997 through the merger of CUC International, Inc. and HFS
Incorporated. It is a consumer and business services company, and provides
technology-driven, membership-based consumer services, travel preparation
services, real estate services, residential mortgage services, tax preparation
services and multimedia software products. Cendant also administers insurance
package programs in connection with certain discount shopping and travel
programs.(2)
- -----------------------
(1) Defendant AIGF is a subsidiary of AIG formed for the purpose of
effectuating the Proposed Merger of American Bankers and AIG.
(2) Plaintiff Season Acquisition Corp. is a New Jersey corporation
formed by Cendant as the acquisition vehicle for its takeover bid.
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THE PROPOSED MERGER WITH AIG
On December 22, 1997, American Bankers announced that it had
entered into an agreement with AIG providing for the merger of American Bankers
and a subsidiary of AIG in a stock-for-stock transaction having a value to
American Bankers' shareholders of $47 per share (the "Proposed Merger"). The
terms of the transaction were embodied in a Merger Agreement and various other
agreements which are the subject of this action. The Proposed Merger with AIG
was approved unanimously by the American Bankers Board, after receiving legal
advice regarding their fiduciary duties and after being advised by the
investment banking firm of Salomon Smith Barney that the consideration being
offered to the American Bankers' shareholders was fair from a financial point of
view, because it offered American Bankers a unique opportunity to meet its
long-term strategic objectives. According to the Company's filings with the SEC,
the Board concluded that the Merger with AIG represented a more attractive
alternative than operating on a stand-alone basis because:
- AIG represents a strong long-term strategic partner for the
Company and AIG is a market leader in the insurance industry
with an excellent and long-standing operating history;
- AIG has extensive knowledge of and experience in regulatory
matters;
- AIG's long-term debt rating will enable the Company to have
access to capital on more favorable terms than it previously
experienced. In addition, the favorable claims-paying ratings
of AIG's insurance subsidiaries will enhance sales of the
Company's insurance products; and
- A combination with AIG will allow access to AIG's considerable
international experience and substantial resources, at a time
of industry consolidation, and thus enable the Company to
expand beyond the domestic market. A combination with AIG will
also allow the Company to enjoy opportunities for operating
efficiencies and synergies, particularly in the international
distribution of the Company's products.
7
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Cendant cannot challenge -- and has not challenged -- these
reasons for the decision by the American Bankers Board to approve the Proposed
Merger. The Proposed Merger, in any event, is subject to a number of conditions,
a complete understanding of which completely eviscerates any claim by Cendant
(or any one else) that shareholders are being coerced into accepting the
Proposed Merger or are being denied an opportunity to determine the outcome of
any bidding contest. First, the AIG Merger is subject to the approval of a
majority of American Bankers' shareholders, who will collectively decide whether
or not to approve the Proposed Merger. The transaction is also subject to
receiving regulatory approval from various state insurance departments, a
process that will not be completed until sometime after the scheduled
shareholder vote. Contrary to plaintiffs' contention, there is nothing in the
Merger Agreement that would prevent a third party, such as Cendant, from making
an unsolicited bid -- as it has done -- or from seeking to dissuade shareholders
from approving the Proposed Merger -- as it is also doing. Indeed, Cendant is
taking full advantage of its ability to persuade American Bankers shareholders
to vote against the Proposed Merger -- and is simultaneously touting its own
offer -- by mounting an active proxy campaign. All of Cendant's huffing and
puffing aside, under the terms of the Proposed Merger it will be American
Bankers' shareholders who will decide whether or not to accept AIG as a merger
partner.
8
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THE CENDANT BID
As noted above, notwithstanding the alleged "deterrent" effect
of the AIG Merger Agreement and related Option and Voting Agreements,(3) on
January 27, 1998 Cendant announced a tender offer (the "Cendant Offer") to
purchase 51 percent of American Bankers shares for $58 per share, which, if
successful, would be followed by a second-step merger in which the remaining 49
percent of American Bankers shares would be exchanged for Cendant shares
allegedly having an equivalent value at the time of issuance. The Cendant Offer
is subject to a number of significant conditions, including receipt of all
required insurance and antitrust regulatory approvals, invalidation of an option
agreement ("Option Agreement") providing for the purchase by AIG of up to 19.9
percent of the total outstanding shares of American Bankers,(4) amendment or
invalidation of the Company's shareholder rights plan, receipt of tenders from
holders of a minimum of 51 percent of American Bankers' shares, termination or
invalidation of
- -----------------------
(3) In sharp contrast to Cendant's litigation posture, Cendant has told
securities analysts that neither the Termination Fee nor Option Agreement
"create a problem in its acquisition of [American Bankers'] shares." In
responding to a question on this subject during a January 27, 1998 analysts'
call, Cendant's President and CEO, Henry R. Silverman, unequivocally declared
that neither feature troubled him:
No, its just money. The contract with ABI provides that AIG is limited
to the higher of the profit on their stock, if any, or $66 million as a
breakup fee. . . sorry, the lower of . . . they're capped at $66
million. So really, it's just a monetary issue.
(4) Plaintiffs attack, as a breach of fiduciary duty, the Option
Agreement and a related provision in the Merger Agreement providing for the
payment, under certain circumstances, of a termination fee (the "Termination
Fee") of up to $66 million in the event the Proposed Merger does not occur --
provisions that are customary in such transactions and well within a range of
reasonableness that courts have routinely approved -- as well as certain other
standard provisions, including a 120-day "no shop" provision, a 180-day "no
termination" provision and a provision exempting the Proposed Merger from the
provisions of the Company's shareholder rights plan. The merits of the Board's
actions in agreeing to these customary provisions are not at issue on this
motion and need not be addressed at this time.
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certain provisions of the AIG Merger Agreement, and the supermajority approval
from American Bankers' shareholders and/or Board of Directors sufficient to
allow it to proceed with a second step merger.
On February 5, 1998, the American Bankers Board met, as
required by the federal securities laws, to consider the Cendant bid. As
reflected in the Company's Schedule Form 14D-9 filed with the Securities and
Exchange Commission the following day, the Board unanimously determined (with
one director absent) that, in light of all the relevant circumstances, it is
unable to take a position with respect to the Cendant Offer and is making no
recommendation at this time with respect to such offer. In reaching this
determination, the Board, along with its legal and financial advisors,
considered the fact that the Cendant Offer currently contemplates a price of $58
per share, an apparent 23 percent premium over the $47 per share in the Proposed
Merger with AIG. The Board also believes that the Cendant Offer has commenced a
process which may or may not lead to higher bids or offers for the Company from
Cendant, AIG or others. The Board therefore concluded that it would be premature
to make any recommendation at this time, particularly in light of the following
aspects of the Cendant Offer which it has been unable to assess thus far:
- Cendant's relatively high level of financial leverage, which
would be further increased by the indebtedness it will incur
in order to finance the offer, and the effect of such leverage
on the operations of the Company;
- Cendant's proposed business plans for the Company if the
Cendant Offer were successful, including treatment of
accounts, employees and policyholders;
- Cendant's experience (or lack of experience) in owning and
operating insurance companies;
- Cendant's ability to provide licensed facilities outside of
the United States to permit international distribution of the
Company's products;
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- Cendant's ability to realize the synergies it has publicly
indicated will be achieved;
- Whether increased revenue levels projected by Cendant require
additional capital infusions in the Company's operating
subsidiaries and the sources of such capital;
- Cendant's plans with respect to intercompany transactions with
the Company's insurance subsidiaries involving intercompany
royalties and fees;
- The potential reaction of the Company's producers and
reinsurers to Cendant; and
- The potential volatility of Cendant's common stock.
In short, at this stage of events, it is impossible to predict
the ultimate outcome, which is precisely why the American Bankers directors, in
fulfillment of their fiduciary duties, have adopted a "wait and see" approach to
the Cendant bid, not wanting to lose the attractive opportunity presented by the
Proposed Merger with AIG. Such an approach is explicitly contemplated by the
rules governing tender offers, specifically SEC Rule 14d-9.
THE INSTANT ACTION
The instant action, filed simultaneously with the commencement
of the Cendant Offer, has been brought by Cendant both in its capacity as a
shareholder and as a competing bidder. According to Cendant's SEC filings,
however, Cendant did not own any shares of American Bankers in December 1997, at
the time the American Bankers Defendants negotiated and approved the AIG Merger
Agreement along with the other features that are the subject of plaintiffs'
breach of fiduciary duty claims. Cendant did not acquire any American Bankers'
shares until mid-January 1998, when it purchased --
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with full knowledge of the AIG Merger Agreement and the deal protection features
that lie at the heart of this case -- 371,200 common and 99,900 preferred
shares.(5) It did so, not to further its own interests as a shareholder, but
rather to further its interests as a competing bidder. Its interests thus are
not aligned with, but rather are antagonistic to, the best interests of American
Bankers' shareholders.(6) Nor did Cendant, prior to commencing this action, make
a pre-suit demand on the Company to obtain the relief it now seeks.
As the following discussion shall demonstrate, because the
claims for breach of fiduciary duty asserted in the amended complaint are
derivative, not direct, in nature and can only be pursued by or in the right of
the corporation, they must be dismissed because (a) plaintiffs were not
shareholders at the time the events giving rise to their claims for breach of
fiduciary duty occurred, and they thus lack standing to sue; (b) the Amended
Complaint fails to allege with particularity exceptional circumstances that
would excuse plaintiffs from making a pre-suit demand, as required both by
Florida law and Rule 23.1; and (c) plaintiffs cannot, in any event, be deemed to
be proper or adequate representatives of the entire class of shareholders whose
interests they purport to protect.
- -------------------------
(5) The common shares were purchased from January 16 to 23, 1998, at an
average price of approximately $46 per share. The preferred shares were
purchased on January 26, the day before this action was commenced. See Exhibit A
to the Affidavit of Richard W. Reinthaler, sworn to on February 8, 1998
("Reinthaler Aff."), submitted in support of the instant motion.
(6) Cendant's management will not dispute the rather obvious fact that
their fiduciary duties to Cendant shareholders obligate them to acquire American
Bankers at the lowest possible price.
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Plaintiffs have also asserted various disclosure claims under
the federal securities laws, which AIG has moved to dismiss. The American
Bankers Defendants respectfully join in AIG's motion to the extent such claims
are also asserted against the American Bankers Defendants (i.e., plaintiffs'
Sixth and Seventh Claims for Relief) and hereby join and incorporate by
reference the arguments made by AIG in its Motion and Memorandum of Law in
Support of Its Motion to Dismiss the Amended Complaint.
ARGUMENT
I.
PLAINTIFFS' CLAIMS FOR BREACH OF FIDUCIARY
DUTY MUST BE DISMISSED FOR FAILURE TO
COMPLY WITH THE REQUIREMENTS OF RULE 23.1
A. PLAINTIFFS' CLAIMS FOR BREACH OF FIDUCIARY DUTY ARE DERIVATIVE, NOT
DIRECT, IN NATURE
It is black-letter law in Florida that claims against
directors of a Florida corporation for breach of fiduciary duty are derivative,
not direct, in nature:(7) Leppert Lakebreeze Homeowners Ass'n, Inc., 500 So.2d
250 (Fla. 1st DCA), rev. den., 511 So.2d 298 (1987); Alario v. Miller, 354 So.2d
925 (Fla. 2d DCA 1978); Citizens Nat'l Bank of St. Petersburg v. Peters, 175
So.2d 54 (Fla. 2d DCA 1965). As such, they can only be asserted by or in the
right of the corporation, by shareholders having the requisite standing to sue.
Id.
- ------------------------
(7) Because American Bankers is incorporated in Florida, Florida law
governs both the duties of directors, International Ins. Co. v. Johns, 874 F.2d
1447, 1458 (11th Cir. 1989), and whether claims asserted against them are direct
or derivative in nature. In re Southeast Banking Corp. v. Brandt, 827 F. Supp.
742, 745-46 (S.D. Fla. 1993), rev'd on other grounds, 69 F.3d 1539 (11th Cir.
1995).
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The distinction between derivative and direct claims is an
important one. Although in certain circumstances (not present here) the same
conduct may give rise to both direct and derivative claims, a plaintiff is not
free to characterize as a direct claim one that is truly derivative in nature.
Rather, in determining whether a claim is truly direct or derivative, the court
must look to the allegations in the complaint, not the parties' characterization
of those claims. Alario, 354 So.2d at 926 ("It is the body of the complaint
which determines whether the injury is direct as to the stockholder . . . or is
indirect as to the stockholder and the cause of action derivative . . . .").
It has long been recognized that a shareholder derivative suit
is the primary (if not sole) means of enforcing fiduciary standards of loyalty
and care imposed on corporate officers and directors. See Surowitz v. Hilton
Hotels Corp., 383 U.S. 363, 371, 86 S. Ct. 845, 850 (1966); Dent, The Power of
Directors to Terminate Shareholder Litigation: The Death of the Derivative
Suit?, 75 Nw. U.L. Rev. 96 (1980) ("Shareholders' derivative suits have long
played a crucial role in assuring a modicum of integrity and competence in the
management of corporations.").
"There is a clear and necessary distinction between an
individual action and a derivative one." Alario, 354 So.2d at 926:
A stockholder's derivative action is an action brought by one
or more stockholders of a corporation to enforce a corporate
right or to prevent or remedy a wrong to the corporation in
cases where the corporation, because it is controlled by the
wrongdoers or for other reasons, fails and refuses to take
appropriate action for its own protection. An action brought
by a stockholder is derivative if the gravamen of the
complaint is injury to the corporation or to the whole body of
its stock or property and not injury to the plaintiff's
individual interest as a stockholder.
Id. (quoting 19 Am. Jur. 2d Corporations Section 528 (1965)). The Alario court
went on to apply the principles set out in Citizens Nat'l Bank, 175 So. 2d at
56:
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A Florida court has defined a derivative suit as an action in
which a stockholder seeks to enforce a right of action
existing in the corporation. Conversely, a direct action, or
as some prefer, an individual action, is a suit by a
stockholder to enforce a right of action existing in him.
What these definitions attempt to convey is that a
stockholder may bring suit in his own right to redress an
injury sustained directly by him, and which is separate and
distinct from that sustained by other stockholders. If,
however, the injury is primarily against the corporation, or
the stockholders generally, then the cause of action is in the
corporation and the individual's right to bring it is derived
from the corporation.
Accord Leppert, 500 So.2d at 252 (citation omitted); Security Professionals,
Inc. v. Segall, 685 So.2d 381, 1384 (Fla. 4th DCA), rev. den., 700 So.2d 687
(1997).
Applying these principles to the instant case, the conclusion
is inescapable that plaintiffs' first three causes of action are derivative, not
direct, in nature. They allege, in essence, that the members of the Board of
Directors of American Bankers breached their fiduciary duty of care owed "to the
corporation and its shareholders" by approving the Proposed Merger with AIG
without adequately informing themselves of other potential transactions that
might offer better value to shareholders, by failing to conduct an auction of
the Company so as to ensure that shareholders received the best possible price,
by agreeing to provisions in the Merger Agreement that were allegedly designed
to deter other bidders and ensure the success of the Proposed Merger with AIG,
and by failing to create a level playing field for all interested bidders.(8)
- -----------------------
(8) Under Florida law, directors have great latitude in exercising
their business judgment in determining what actions are in the best interests of
the company, and are specifically empowered in reviewing transactions to
consider factors other than the short-term maximization of shareholder value. In
discharging their duties, directors:
may consider such factors as [they] deem relevant, including the
long-term prospects and interests of the corporation and its
shareholders, and the social,
continued on the following page...
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Leaving aside the fact that the Board's actions have not
deterred Cendant from making an offer that it claims is $11 per share higher
than what shareholders will receive from AIG, as well as the fact that the
Proposed Merger is subject to the approval of American Bankers' shareholders and
is thus by no means assured of success, it is clear that the gravamen of
plaintiffs' first three causes of action is the allegation that the Board, in
approving the Proposed Merger, acted "to the detriment of the Company's owners -
its shareholders." Amended Comp. Paragraph 10. The wrong alleged is injury to
the whole body of stockholders generally. To the extent Cendant is seeking to
redress an injury sustained directly by it, which is separate and distinct from
that suffered by other shareholders, it is an injury suffered in its capacity
as a competing bidder, not as a shareholder. The fallacy in Cendant's complaint
lies in the fact that the Board's fiduciary duties under Florida law run to the
corporation and its shareholders, not to unsolicited bidders who were not even
shareholders at the time of the events of which they complain. Because the
American Bankers Defendants owed no duties to Cendant at the time the Merger
Agreement was signed, and owe no fiduciary duties, under Florida law, to
Cendant as a hostile bidder, plaintiffs lack standing to sue for breach of
fiduciary duty. (9)
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...continued from the preceding page
economic, legal, or other effects of any action on the employees,
suppliers, customers of the corporation or its subsidiaries, the
communities and society in which the corporation or its subsidiaries
operate, and the economy of the state and the nation.
Section 607.0830 Fla. Stat. (Supp. 1993).
(9) Although not controlling, even Delaware law would not grant
plaintiffs standing to pursue the claims they have asserted here. As (former)
Chancellor Allen of the Delaware Chancery Court said in Gagliardi v. TriFoods
Int'l, Inc., 683 A.2d 1049, 1055 (Del. Ch. 1996):
continued on the following page...
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B. PLAINTIFFS LACK STANDING TO ASSERT CLAIMS UNDER RULE 23.1
Fed. R. Civ. P. 23.1 provides, in pertinent part, that:
In a derivative action brought by one or more shareholders . .
. to enforce a right of a corporation . . . the complaint
shall be verified(10) and shall allege (1) that the plaintiff
was a shareholder . . . at the time of the transaction of
which plaintiff complains . . . .
The "contemporaneous" ownership requirement is designed to
prevent exactly what occurred here -- the purchase of a lawsuit, after-the-fact,
by a person who was not a shareholder at the time of the events in question.
Blum v. Morgan Guaranty Trust Co. of New York, 539 F.2d 1388, 1390 (5th Cir.
1976) ("Fifth Circuit law is well settled that estoppel will work to deny
standing to a plaintiff who buys stock with knowledge of the wrongs of which he
complains.");(11) see also Bangor Punta Operations, Inc. v. Bangor & Aroostook
R.R. Co., 417 U.S. 703, 710-11 (1974) (holding that shareholder, who acquired
stock after allegedly wrongful activity took place, lacked standing to pursue
suit). Here, it appears from Cendant's own filings that Cendant owned no
American Bankers shares in December 1997 when AIG and the Company negotiated
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...continued from the preceding page
[I]t is a simple and I would have thought well understood fact that one
[in the position of a tendor offeror] possesses no general legal right
to have an owner of an asset supply him information or negotiate with
him. Thus it simply is not a legal wrong to a would-be buyer for an
owner to ignore or reject an offer of sale.
(10) Plaintiffs' complaint is not verified.
(11) Concluding that the plaintiff in Blum "advance[d] purchased
grievances," the Fifth Circuit further observed that "[a] stranger to the
corporation who buys stock with knowledge of alleged wrongs may not maintain a
derivative action even if the wrongs are continuing and persist past the time of
his purchase." Blum, 539 F.2d at 1390.
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and approved the Proposed Merger with AIG and related Agreements. It did not
become a shareholder until mid-January 1998. It acquired its American Bankers
shares to further its own interests as a bidder, with full knowledge of the
terms of the AIG Merger and related Agreements, including all of the deal
protection features that are the subject of the amended complaint.
Because plaintiffs were not shareholders at the time the
alleged breaches of fiduciary duty occurred, they cannot satisfy the
requirements of Rule 23.1.(12) See Daily Income Fund, Inc. v. Fox, 464 U.S. 523,
531 n. 6, 104 S.Ct. 831, 836-37 (1984) (the contemporaneous ownership
requirement in Rule 23.1 is intended "to discourage contrived diversity suits"
and is "generally 'aimed at preventing the federal courts from being used to
litigate purchased grievances.'") (quoting 7A C. Wright & A. Miller, Federal
Practice and Procedure, Section 1828, at pp. 341-42 (1972)). Accordingly,
plaintiffs' first three causes of action must be dismissed for lack of
standing.(13)
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(12) The "contemporaneous" ownership rule is also embodied in Florida's
equivalent to Rule 23.1. Section 607.07401(1) Fla. Stat. (Supp. 1993) ("A person
may not commence a proceeding in the right of a domestic . . . corporation
unless the person was a shareholder of the corporation when the transaction
complained of occurred . . . ."). See Provence v. Palm Beach Taverns, Inc., 676
So.2d 1022 (Fla. 4th DCA 1996).
(13) The distinction between direct and derivative claims, while
important, may not be necessary to the outcome, given that Cendant was not a
shareholder at the time the alleged breaches of fiduciary duty occurred. As
noted previously, no fiduciary duties were owed by the American Bankers Board to
Cendant as a potential bidder in December 1997, nor are any such duties owed to
Cendant as a competing bidder today. See Sanders v. Devine, 1997 WL 599539, at
*5 (Del. Ch. Sept. 24, 1997) (`[i]n the present case, plaintiff was not a
shareholder at the time the prospectus was issued, therefore, as a matter of
law, there can be no liability under any fiduciary duty theories for the
disclosures made in connection with the offering.").
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C. PLAINTIFFS' CLAIMS FOR BREACH OF FIDUCIARY DUTY SHOULD BE DISMISSED FOR
FAILURE TO MAKE A PRE-SUIT DEMAND
Rule 23.1 requires the plaintiff in a derivative action to
"allege with particularity the efforts, if any, made by the plaintiff to obtain
the action the plaintiff desires from the directors . . . and the reasons for
the plaintiff's failure to obtain the action or for not making the effort." Rule
23.1 incorporates the requirement under Florida law that a shareholder plaintiff
suing derivatively make a pre-suit demand on the Company before initiating suit
on its behalf. Section 607.07401(2) Fla. Stat. (Supp. 1993); see also McDonough
v. Americom Int'l Corp., 151 F.R.D. 140, 142 (M.D. Fla. 1993) ("[T]he law of the
state of incorporation is determinative of any demand requirement.").
The demand requirement serves an important purpose and
reflects a judicial recognition of the business judgment rule:
The demand requirement is designed to require a shareholder to
exhaust intracorporate remedies before bringing a corporate
cause of action to the courts. The requirement reflects a
judgment that a board of directors intimate with the facts of
the case, possessing business expertise, and imbued with a
legal duty to make evenhanded judgments that promote the
corporation's best interest will usually be able to craft a
resolution to a conflict with shareholders superior to a
court's best effort.
Gaubert v. Federal Home Loan Bank Bd., 863 F.2d 59, 69 (D.C. Cir. 1988)
(applying Texas law); Kamen v. Kemper Financial Services, Inc., 500 U.S. 90, 96,
111 S.Ct. 1711 (1991) ("The purpose of the demand requirement is to 'affor[d]
the directors an opportunity to exercise their reasonable business judgment and
'waive a legal right vested in the corporation in the belief that its best
interests will be promoted by not insisting on such right."") (quoting Daily
Income Fund, Inc., 464 U.S. at 533, 104 S.Ct. at 836-37); Dutch v. Gordon, 481
So. 2d 1235 (Fla. App. 1986).
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In the instant case, plaintiffs did not make a pre-suit demand
and have not alleged with particularity why they did not or why they believe the
making of a demand here -- given the number of outside, totally independent and
disinterested directors -- would be futile.(14) The reason, of course, is plain.
Given the composition of the American Bankers Board, plaintiffs cannot satisfy
the "rigorous" requirement under Rule 23.1 that the complaint set forth "the
exceptional circumstances why demand would be futile." First American Bank &
Trust v. Frogel, 726 F. Supp. 1292, 1298 (S.D. Fla. 1989). Allegations of
participation or acquiescence in the approval of the AIG Merger Agreement by a
majority of the Board -- which is all that plaintiffs have alleged here -- are
plainly insufficient to excuse a demand. Id. Perhaps the best evidence of this,
and what dooms plaintiffs' claims to failure, is the course taken by the
American Bankers Board in response to the Cendant bid, which clearly
demonstrates a level of responsiveness and dedication to duty that is the
hallmark of a fiduciary's obligations under Florida law.
D. BECAUSE PLAINTIFFS CANNOT FAIRLY AND ADEQUATELY REPRESENT THE INTERESTS
OF ALL SHAREHOLDERS, THEIR CLAIMS FOR BREACH OF FIDUCIARY DUTY MUST BE
DISMISSED
Rule 23.1 also provides in pertinent part that:
The derivative action may not be maintained if it appears that the
plaintiff does not fairly and adequately represent the interests of the
shareholders . . . similarly situated in enforcing the right of the
corporation . . . .
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(14) As noted previously, American Bankers' Board of Directors is
comprised of 15 individuals, 13 of whom are truly independent, disinterested
directors. Moreover, it is significant that both AIG and Cendant have declared
that they intend to keep management intact following the completion of their
respective transactions.
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It is beyond dispute that a derivative plaintiff who is
engaged in another or a broader dispute concerning the corporation -- especially
a dispute concerning the management and control of the corporation -- is an
inadequate representative to prosecute a derivative action on the corporation's
behalf. Smith v. Ayres, 977 F.2d 946, 949 (5th Cir. 1992) ("A plaintiff in a
shareholder derivative action owes the corporation his undivided loyalty. The
plaintiff must not have ulterior motives and must not be pursuing an external
personal agenda."); Baron v. Stawbridge & Clothier, 646 F. Supp. 690, 695 (E.D.
Pa. 1986) (Plaintiff "is not merely an unhappy shareholder; rather, he is also a
tender offeror who is seeking to gain control of the Company. [Plaintiff] hopes
to acquire control at the lowest possible price per share; the other
shareholders, if required to sell their shares, would want the highest possible
price per share. These interests are manifestly antagonistic."); Davis v. Comed,
Inc., 619 F.2d 588, 592-98 (6th Cir. 1980); Blum v. Morgan Guaranty Trust Co. of
New York, 539 F.2d 1388, 1390 (5th Cir. 1976); Nolen v. Shaw-Walker Co., 449
F.2d 506, 507-10 (6th Cir. 1971); Roussel v. Tidelands Capital Corp., 438 F.
Supp. 684, 686-89 (N.D. Ala. 1977); Robinson v. Computer Servicenters, Inc., 75
F.R.D. 637 641-44 (N.D. Ala. 1976).
The rationale underlying these decisions is that a derivative
plaintiff with outside entanglements involving the corporate defendant might be
inclined to use the derivative litigation as "leverage" to advance its own
selfish interests or might abandon the derivative action when it no longer
provides that "leverage." Thus, for example, in Nolen, 449 F.2d at 506, the
Sixth Circuit affirmed the District Court's dismissal of a derivative claim
brought by a minority shareholder against seven directors of a corporation. The
court found that the derivative plaintiff failed to meet the requirements
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of Rule 23.1 because the litigation was being controlled by an individual who
sought to bring about a merger between the Company and a corporation in which he
had an interest. So, too, here.
In this action, Cendant's dominant self-interest as a bidder
is beyond dispute. Cendant is unquestionably using this litigation to advance
its own selfish takeover strategy rather than to protect American Bankers and/or
its shareholders from any alleged breach of fiduciary duty. Because Cendant
cannot "fairly and adequately" represent the interests enforcing the rights of
the corporation, it lacks standing to sue under Rule 23.1.
I.
PLAINTIFFS' SIXTH AND SEVENTH CAUSES OF
ACTION, ALLEGING VIOLATIONS OF THE FEDERAL
SECURITIES LAWS, SHOULD ALSO BE DISMISSED
As noted previously, the American Bankers Defendants join and
incorporate herein by reference AIG's motion to dismiss all claims asserted by
plaintiffs against the American Bankers Defendants under the federal securities
laws.
II.
IN THE ALTERNATIVE, THIS COURT
MAY DECLINE TO EXERCISE
SUPPLEMENTAL JURISDICTION
OVER PLAINTIFFS' STATE LAW CLAIMS
Because AIG and Cendant are Delaware corporations, this Court
lacks diversity jurisdiction over plaintiffs' claims. In the event this Court
dismisses plaintiffs' federal claims, it need not address the separate grounds
for dismissal of the breach of fiduciary duty claims asserted in Point I of this
brief. Rather, it may, if it so chooses,
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simply decline to exercise supplemental jurisdiction over such claims. 28 U.S.C.
Section 1367(c)(3). See United Mine Workers v. Gibbs, 383 U.S. 715 (1966).
CONCLUSION
For the foregoing reasons, as well as the reasons set forth in
AIG's motion to dismiss, the American Bankers Defendants respectfully request
that the Court grant their motion to dismiss plaintiffs' amended complaint.
Dated: February 9, 1998
JORDEN BURT BERENSON & JOHNSON LLP
By:_________________________________
Franklin G. Burt
Florida Bar No. 197963
777 Brickell Avenue, 5th Floor
Miami, Florida 33131
Telephone: 305-371-2600
Facsimile: 305-372-9928
Attorneys for the American Bankers Defendants
Of Counsel:
Robert C. Myers
Richard W. Reinthaler
Seth C. Farber
DEWEY BALLANTINE LLP
1301 Avenue of the Americas
New York, New York 10019
(212) 259-8000
(212) 259-6333
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