SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D/A
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(Amendment No. 12)*
NAME OF ISSUER: American Industrial Properties REIT
TITLE OF CLASS OF SECURITIES: Shares of Beneficial Ownership
CUSIP NUMBER: 026791103000
NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO
RECEIVE NOTICES AND COMMUNICATIONS:
Natalie I. Koether, Esq., Rosenman & Colin
P. O. Box 97, Far Hills, New Jersey 07931 (908) 766-4101
DATE OF EVENT WHICH REQUIRES FILING: September 9, 1996
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1 (b)(3) or (4), check the following: ________
Check the following if a fee is being paid with the statement:_________. (A fee
is not required only if the reporting person: (1) has a previous statement on
file reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.)
(See Rule 13d-7.)
Note: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are to
be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover shall not be deemed to
be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934
("Act") or otherwise subject to the liabilities of that section of the Act but
shall be subject to all other provisions of the Act (however, see the Notes).
(Continued on following pages)
<PAGE>
CUSIP NO.: 026791103000
1. NAME OF REPORTING PERSON: Pure World, Inc.
(formerly American Holdings, Inc.)
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP:
(a) (b) X
3. [SEC USE ONLY]
4. SOURCE OF FUNDS: WC
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) OR 2(e):
6. CITIZENSHIP OR PLACE OF ORGANIZATION: Delaware
7. SOLE VOTING POWER: 888,000
8. SHARED VOTING POWER:
9. SOLE DISPOSITIVE POWER: 888,000
10. SHARED DISPOSITIVE POWER:
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON: 888,000
12. CHECK BOX IS THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES:
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 9.785%
14. TYPE OF REPORTING PERSON: CO
<PAGE>
This Amendment No. 12 (the "Amendment") relates to the Schedule 13D filed
on February 2, 1994, in connection with the ownership by Pure World, Inc. ("Pure
World") of Shares of Beneficial Interest ("Shares") of American Industrial
Properties REIT, a Texas real estate investment trust (the "Trust"). The
capitalized terms used in the Amendment, unless otherwise defined, shall have
the same meaning as in the original Schedule 13D.
Item 4. PURPOSE OF TRANSACTION.
Item 4 is amended hereby to add the following:
In connection with its lawsuit against Pure World and Pure World's
Chairman, amoung other things, American Industrial Properties REIT (the "Trust")
alleged that Pure World had purchased excess shares (more than the 9.8%
permitted under the Trust's Bylaws) and received dividends on those shares in
violation of the Bylaws. The Trust sought the reimbursement of dividends paid to
Pure World and a declaratory judgment that dividends could be withheld on excess
shares. Pure World and its Chairman filed a Motion for Partial Summary Judgment
arguing, amoung other things, that they did not purchase excess shares and that
the Bylaws imposing share ownership limits were invalid.
On September 9, 1996 the Court granted Pure World and its Chairman's Motion
for Partial Summary Judgment based on the evidence and because the Bylaw
provisions restricting share ownership are invalid.
A copy of the Court's Order is attached as Exhibit D.
On September 6, 1996 Pure World filed a complaint against the Trust in the
same Court seeking an injunction to require that the Trust provide Pure World
with a shareholder's list. The complaint states that the Trust has repeatedly
refused Pure World's request for the list despite Pure World's clear entitlement
under the Texas REIT Act.
Item 7. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit D - Court Order.
<PAGE>
EXHIBIT D
FILED U.S. DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
SEPTEMBER 9, 1996
BY: NANCY DOHERTY, CLERK
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHEASTERN DISTRICT OF TEXAS
DALLAS DIVISION
AMERICAN INDUSTRIAL -
PROPERTIES REIT, -
-
Plaintiff, -
-
v. - Civil No. 3:96-CV-0068-H
-
PURE WORLD, INC. AND PAUL O. -
KOETHER, -
-
Defendants, -
-
_______________________________ -
-
PURE WORLD, INC. -
-
Counter-plaintiff, -
-
v. -
-
AMERICAN INDUSTRIAL -
PROPERTIES REIT, -
-
Counter-defendant, -
-
_______________________________ -
-
PURE WORLD, INC. individualy -
and on behalf of AMERICAN -
INDUSTRIAL PROPERTIES REIT, -
-
Third party plaintiffs, -
-
v. -
-
CHARLES W. WOLCOTT and -
WILLIAM H. BRICKER, -
-
Third party defendants. -
<PAGE>
ORDER
-----
Before the Court is Defendants Pure World and Koether's Motion for Partial
Summary Judgment--Excess Shares, filed May 6, 1996; Affidavit of Paul Koether in
Support of Motion for Partial Summary Judgment--Excess Shares, filed May 6,
1996; Plaintiff's Response to Defendants' Motion for Partial Summary
Judgment--Excess Shares, filed May 31, 1996; Reply Brief in Support of Motion
for Partial Summary Judgment, filed June 14, 1996; Affidavit of Jason Bergmann
in Support of Motion for Partial Summary Judgment--Excess Shares, filed June 24,
1996; American Industrial Properties REIT's Sur-Reply, filed June 25, 1996; and
Defendants' Response to Plaintiff's Sur-reply, filed July 3, 1996.
1. BACKGROUND
----------
American Industrial Properties REIT ("the Trust") is a publicly owned, real
estate investment trust originally established in 1985 under the Texas Real
Estate Investment Trust Act (the "REIT Act"). The Trust's current managers are
Charles W. Wolcott ("Wolcott") and William H. Bricker ("Bricker") (collectively,
the "Trust Managers"). Pure World, Inc. ("Pure World") is a corporation that is
controlled and substantially owned by Paul O. Koether ("Koether"), Pure World's
Chief Executive Officer.
The Trust filed this suit against Pure World and Koether on January 8,
1996, alleging violations of the Securities Exchange Act and Texas securities
laws; fraud; conspiracy; and unjust enrichment. According to the Trust, Koether
has been attempting to seize control of the Trust through proxy contests in 1994
and 1995.
Pure World filed counterclaims against the Trust and third-party claims
against the Trust managers, Wolcott and Bricker, on January 30, 1996. The
counter-claims and third-party claims are based on allegations that the Trust
Managers have mismanaged the Trust, breached duties of loyalty and care,
exceeded their authority, and misrepresented the condition of the Trust to
shareholders. Pure World has asserted Counts 1-6 in its individual capacity, and
Counts 6-8 derivatively on behalf of the Trust and all its shareholders.
<PAGE>
Currently before the Court is Defendants' Motion for Summary Judgment on
the Trust's excess shares claims. The Trust alleges that Pure World has
purchased excess shares (i.e. more than the percentage of shares allowed in the
bylaws) and received dividends on those shares in violation of the bylaws. SEE
Fourth Amended Bylaws ("Bylaws") sec. 9.2 ("no person shall at any time directly
or indirectly acquire or hold beneficial ownership of shares with an aggregate
value in excess of 9.8% of the aggregate value of shares"); Bylaws sec. 9.5
(excess shares "shall not be entitled to dividends," are "not considered for
purposes of any shareholder vote;" and "shall not be transferable"). In Count
VII of its Complaint, the Trust asserts claims for money had and received, and
unjust enrichment, and, in Count VI, seeks a declaratory judgment. In addition,
the Trust filed a First Supplemental Complaint that adds an interpleader claim
relating to the excess shares. In their motion, Pure World and Koether argue;
(1) that they neither purchased excess shares nor received dividends on excess
shares; (2) the bylaws imposing share ownership limits are invalid; and (3) the
interpleader action is improper as a matter of law.
II. STANDARD OF REVIEW
------------------
Rule 56(c) of the Federal Rules of Civil Procedure provides that summary
judgment shall be rendered when the evidence establishes that there is "no
genuine issue as to any material fact" and that the movant is "entitled to
judgment as a matter of law." Fed. R. Civ. P. 56(c); RUIZ V. WHIRLPOOL, INC., 12
F.3d 510, 513 (5th Cir. 1994); ARMSTRONG V. CITY OF DALLAS, 829 F. Supp. 875.
876 (N.D. Tex. 1992), AFF'D, 997 F.2d 62 (1993). Under proper circumstances,
awarding summary judgment is favored in the federal courts: "Summary judgment
reinforces the purpose of the Rule, to achieve a just, speedy, and inexpensive
determination of actions, and, when appropriate, affords a merciful end to
litigation that would otherwise be lengthy and expensive." FONTENOR V. UPJOHN
CO., 780 F.2d 1190, 1197 (5th Cir. 1986).
A summary judgment movant must inform the court of its basis for the motion
and identify the material specified in Rule 56(c) that it believes demonstrates
the absence of a genuine issue of material fact. CELOTEX CORP. V. CATROTT, 477
U.S. 317, 322-23 (1986); TOPALIAN V. EHRMAN, 954 F.2d 1125, 1131 (5th Cir.),
CERT DENIED, 113 S.Ct. 82 (1992). If the movant fails to meet its initial
burden, the motion must be denied, regardless of the nonmovant's response.
LITTLE V. LIQUID AIR CORP., 37 F.3d 1069, 1975 (5th Cir. 1994).
If the movant carries its burden, the burden shifts to the nonmovant to
show that summary judgment should not be granted. CELOTEX, 477 U.S. at 324. A
party opposing summary judgment must go beyond the pleadings and "set forth
specific facts" showing that there is a "genuine issue for trial." Fed. R. Civ.
P. 56(e); ANDERSON V. LIBERTY LOBBY, INC., 477 U.S. 242, 256 (1986); MATSUSHITA
ELEC. INDUS. CO. LTD. V. ZENITH RADIO CORP., 475 U.S. 574, 587 (1986); RUIZ, 12
F.3d at 513; ARMSTRONG, 829 F. Supp. at 876. A party opposing summary judgment
may not rest on mere conclusory allegations or denials in its pleadings. Fed. R.
Civ. P. 56(c); HIGHTOWER V. TEXAS HOSP. ASSN., 65 F.3d 443, 447 (5th Cir. 1995),
REH'G DENIED, 73 F.3d 43 (5th Cir. 1996). A party must do more than simply show
some "metaphysical doubt as to the material facts." MATSUSHITA, 475 U.S. at 586.
There must be "significant probative evidence" on which a jury could reasonably
find for the nonmovant. ANDERSON, 477 U.S. at 249.
<PAGE>
In determining whether a genuine issue exists for trial, the Court must
view the evidence introduced and all factual inferences from the evidence in the
light most favorable to the nonmovant, EASTMAN KODAK V. IMAGE TECHNICAL
SERVICES, 504 U.S. 451, 456-58 (1992); GREMILLION V. GULF COAST CATERING CO.,
904 F.2d 290, 292 (5th Cir.), REH'G DENIED, 909 F,2d 1479 (5th Cir. 1990). SEE
ALSO BODENHEIMER V. PPG INDUS., INC., 5 F.3d 955, 956 (5th Cir. 1993). "If the
record, taken as a whole, could not lead a rational trier of fact to find for
the nonmoving party, there is no genuine issue for trial." MATSUSHITA, 475 U.S.
at 587; ERIOU V. PHILLIPS PETROLEUM CO., 948 F.2d 972, 974 (5th Cir, 1991).
With these summary judgment standards in mind, the Court turns to an
analysis of the motion in this case.
III. EXISTENCE OF EXCESS SHARES
--------------------------
A. SUMMARY JUDGMENT EVIDENCE
The Trust claims that Pure World and/or Koether have purchased shares above
the 9.8% limit established in the Bylaws at section 9.2. That provision reads:
"no person shall at any time directly or indirectly acquire or hold beneficial
ownership of shares with an aggregate value in excess of 9.8% of the aggregate
value of shares."
1. DEFANDANTS' SUMMARY JUDGMENT EVIDENCE
Defendants have presented summary judgment evidence that neither Pure World
nor Koether beneficially own any shares of the Trust in addition to the 880,000
shares (9.785% of the Trust's outstanding shares) that Pure World has publicly
disclosed. Motion Para. 2, 3; Koether Aff. Para. 4, 5. Moreover, neither
Defendant, "either singly or together in concert with others, has collected
dividends on any shares of the Trust except the 880,000 shares owned by Pure
World." Motion Para. 4; Koether Aff. Para. 6.
2. THE TRUST'S SUMMARY JUDGMENT EVIDENCE
The Trust implies that Pure World has been acting with others and that they
COLLECTIVELY own more than 9.8% of the shares. The Trust discusses the standards
for the existence of a group under section 13(d) of the Securities Exchange Act.
A section 13(d) group exists if there is an informal intent to act in concert to
achieve a common objective. See WOLLMAN V. DICKINSON, 682 F.2d 355, 363 (2d Cir.
1982), CERT. DENIED, 460 U.S. 1069 (1983); SEC V. DREXEL BURNHAM LAMBERT, INC.,
837 F. Supp. 587, 607 (S.D.N.Y. 1993), AFF'D., 16 F.3d 520 (2d Cir. 1994), CERT.
DENIED, 115 S.Ct. 724 (1995). The agreement need not be in writing and it does
not have to meet the formal requirements for contract formation. SEC V. SAVOY
INDUS., 587 F.2d 1149, 1163 (D.C. Cir. 1978), CERT. DENIED. 440 U.S. 913 (1979).
Therefore, the Trust argues, whether a group exists is often determined by
circumstantial evidence. ID. at 1163-64. The Trust offers the following evidence
that Pure World acted as part of a group to have a beneficial interest in excess
shares:
(1) Two people nominated by Pure World in the 1995 Shareholder Proxy
Contest have strong ties to Pure World and may own shares in the Trust. John
Galuchie is an officer of Pure World and Richard Bossert is a director and
shareholder of Pure World. KOETHER DEPO., pp. 39, 43; Pure World's First Amended
Answer and Counterclaim, Para. 123.
(2) Koether has "conferred exclusively" with other shareholders (including
Jonathan Tratt and Richard Osborne) who have supported Pure World and Koether in
the proxy contest. KOETHER DEPO., pp. 295-98, 305-6, 339.
<PAGE>
(3) Osborne has been accused of failing to disclose the existence of a
group in connection with a bid to control another REIT. Verified Complaint in
FIRST UNION V. OBSORNE in N.D. Ohio filed 1995.
(4) Curtis Boisfontaine, an officer with Insignia Financial, who made a bid
to purchase the Trust's notes held by MLI stated that Koether told him that
Koether controls 15% of the Trust's shares. WOLCOTT DEPO., p. 131-32.
(5) Don Lorenz, CFO of Bedford Properties, stated that Tratt, another
shareholder, told Lorenz that Tratt and his group, including Koether, controlled
15% of the Trust's shares. WOLCOTT DEPO., p. 131-32.
(6) Koether and/or Pure World have established a pattern of owning shares
in names other than their own in other cases. SEE STRAUSS V. AMERICAN HOLDINGS,
INC., 902 F. Supp. 475 (S.D.N.Y. 1995).
(7) The Trust has identified share positions that were sold to Pure World
and/or Koether, or entities controlled by them above the 880,000 registered
shares. WOLCOTT DEPO., p. 139.
3. ANALYSIS OF THE TRUST'S SUMMARY JUDGEMENT EVIDENCE
The Trust has failed to present admissible evidence setting forth "specific
facts" showing that there is a "genuine issue for trial." SEE CELOTEX, 477 U.S.
at 322-23. The Trust's argument and evidence offered to prove Pure World's
participation in a group is irrelevant to its excess shares claims. The Bylaws
state that, with two narrow exceptions, "no person shall at any time directly or
indirectly acquire or hold beneficial ownership of shares with an aggregate
value in excess or 9.8% of the aggregate value of all outstanding shares." Bylaw
sec. 9.2. The definition of excess shares does not include those shares
beneficially owned by a different shareholder who is a member of a section 13(d)
group with the target shareholder. Therefore, facts (1)-(5) relied on in
opposition to the Motion are irrelevant.
<PAGE>
The Trust's two remaining assertions do not defeat summary judgment. The
Trust relies on STRAUSS ON BEHALF OF SERVICO, INC. V. AMERICAN HOLDINGS, INC.
902 F. Supp. 475 (S.D.N.Y. 1995), in support of the assertion that "Koether
and/or Pure World have established a pattern of owning shares in names other
than their own in other cases, for the purpose of disclosing (sic) true
ownership." SEE Response at 12. In that case, three companies in which Koether
had an ownership interest purchased shares of Servico, Inc. The district court
in that case denied American Holdings' motion to dismiss, finding that the
plaintiff's allegations, if taken as true, would establish the existence of a
group for section 16(b) purposes. ID. at 486. That case does not preclude
summary judgment in this case. First, the entities in STRAUSS made their share
purchases in the open, and not secretly, as the Trust alleges occurred here.
Second, the STRAUSS opinion is incompetent evidence because the factual
recitation in that opinion is based only upon the allegations in that
plaintiff's complaint and not upon findings of fact by the court. Third, the
evidence is inadmissible because prior acts may not be used to prove present
actions in conformity therewith. SEE Fed. R. Evid. 404(b) ("Evidence of other
crimes, wrongs, or acts is not admissible to prove the character of a person in
order to show action in conformity therewith.").
The remaining evidence offered is from the deposition testimony of Charles
Wolcott, one of the Trust Managers. Wolcott said: "I believe that we have
identified share positions that we have been told were sold directly to Mr.
Koether that we believe are currently controlled by Mr. Koether, but are not
recognized or identified as among his 880,000 registered shares." Wolcott Depo.
at 139. However, when pressed for a more specific answer, Mr. Wolcott responded:
"I don't have the specific facts at this time to tell you." Wolcott Depo. at
140.
The Trust has not met the burden of defeating the summary judgment evidence
presented by Pure World. Specifically, it has failed to "set forth specific
facts" showing that there is a "genuine issue for trial" regarding the excess
shares claims. Fed. R. Civ. P. 56(e); ANDERSON, 477 U.S. at 256, MATSUSHITA, 475
U.S. at 587; RUIZ, 12 F.3d at 513; ARMSTRONG, 829 F. Supp. at 876. Accordingly,
Defendants' Motion for Summary Judgment--Excess Shares is GRANTED based on the
summary judgment evidence.
B. REQUEST FOR CONTINUANCE DENIED
In the alternative, the Trust requests a continuance so that it may conduct
more discovery on the issue of excess shares. The Trust contends that "discovery
is in its infancy," discovery was delayed until the Court entered its May 20
Order allowing discovery to resume; most of the evidence required by the Trust
is within the exclusive control of Pure World; documents requested in the
subpoena ducas tecum for Tratt's deposition have not been produced; additional
third party depositions (including Curtis Boisfontaine and Bob Lorenz) are
necessary; Pure World has refused to produce a copy of its shareholder list; and
no privilege log has been provided.
<PAGE>
The Court finds that a continuance is not warranted. To obtain a
continuance under Rule 56(f), "the nonmoving party must show how the additional
discovery will defeat the summary judgment motion...and may not simply rely on
vague assertions that additional discovery will produce needed, but unspecified
facts." INTERNATIONAL SHORTSTOP, INC. V. BALLY'S INC., 939 F.2d 1257, 1267 (5th
Cir. 1991), CERT. DENIED, 502 U.S. 1059 (1992). Because the existence of a group
is irrelevant to the Trust's excess shares claims, the depositions and Pure
World's shareholder list will not defeat the summary judgment motion. In
addition, the Trust has conducted significant discovery since the January 8,
1996 filing of this case. The Trust has deposed defendant Koether for six hours,
Jonathan Tratt for two hours and Stewart Sprague for less than one hour, during
which time it was able to inquire whether Pure World or Koether possessed excess
shares. See Response at 13. The Trust has also received documents responsive to
its request for "records regarding all such trades by Pure World, Koether, or by
any other person or entity if Pure World had any direct, indirect, or beneficial
interest in the shares."1
___________________________________
1 While the Trust had not been provided with a privilege log at the time of
the pleadings, Pure World's counsel represented to the Court that the Defendants
have withheld no documents that are responsive to that request on grounds of
privilege. Reply at 9, n. 10.
IV. VALIDITY OF BYLAWS
------------------
Defendants also argue that the bylaws placing the restrictions on share
ownership are invalid because the bylaws conflict with the Declaration of Trust
and are inconsistent with the requirements of the Texas REIT Act.
As a preliminary matter, there is some dispute as to whether the old or the
new REIT Act applies. The REIT Act was substantially amended effective September
1, 1995. The Trust contends that the predecessor REIT Act applies because "AIP's
By-law provision" (apparently referring to the transfer restriction provision
alone) was adopted in February 1994. The Trust further contends that "the new
REIT Act does not purport to void provisions which were adopted prior to its
effective date, nor is such retroactivity presumed in a statute." Response at
17, CITING, LANDGRAF V. U.S.I. FILM PRODUCTS, 114 S.Ct. 1483, 1500 (1994); EX
PARTE ABELL, 613 S.W.2d 255, 258 (Tex. 1981). However, the Trust has failed to
present a coherent and consistent argument regarding the timing of the bylaw
amendments. In prior filings with the Court, the Trust relied on the September
1995 amendments to the REIT Act to justify the trust Managers' conduct.
Counter-Defendant's and Third Party Defendants' Response to Pure World's Motion
for Partial Summary Judgment at 4. In a form submitted to the SEC, Trust Manager
Wolcott wrote that the 9.8% cap was incorporated in the Fourth Amended Bylaws
just a few weeks after the effective date of the new REIT Act, in part, "to
reflect the adoption of the revised Texas Real Estate Investment Act." SEC Form
8-K, at Koether Affidavit filed February 20, 1996, exhibit K at 1. In addition,
in past decisions in this case, the Court has used the new Act. Oral Argument on
Pure World's Motion for Partial Summary Judgment--Appointment of a Receiver,
March 26, 1996. Therefore, the new REIT Act should be applied here. However,
under either version, the bylaw provisions are invalid.
A. CONFLICTS WITH DECLARATION OF TRUST
Both the current REIT Act and the predecessor Act provide that "bylaws may
contain any provisions for the regulation and management of the affairs of the
trust not inconsistent with law or the declaration of trust." Tex. Rev. Civ.
Stat. Ann, art. 6138A ("REIT Act") sec. 9.10; 1989 REIT Act sec. 9. Therefore,
to the extent that the Trust's bylaws conflict or are inconsistent with
provisions in the declaration of trust, those bylaws are invalid.
<PAGE>
Article IX of the Fourth Amended Bylaws ("Bylaws") conflicts directly with
one provision of the Declaration of Trust and is inconsistent with two other
provisions of the Declaration. First, the Declaration of Trust provides that
"all the shares shall be equal in all respects to every other such share."
Declaration of Trust, Article 7. However, Article IX of the Bylaws classifies
all shares "beneficially own(ed)" by a person "in excess of the Ownership Limit"
as "Excess Shares" and provides that the excess shares "shall not be entitled to
any dividends," are "not considered for purposes of any shareholder vote,"
"shall not be transferable," and may be redeemed by the Trust. Bylaws sec. 9.5.
Courts have held that provisions far less discriminatory than those in Article
IX violate a mandate that "each share shall be equal to every other share." SEE,
E.G., AVON PRODUCTS, INC. V. CHARTWELL ASSOC., L.P., 738 F. Supp. 686, 690
(S.D.N.Y. 1990) (where a holder of 12.4% or less of the stock had the
possibility of redemption after crossing the 20% activation threshold but a
holder of 12.5% or more did not, the shareholder rights plan violated
anti-discrimination provisions of New York corporations law), AFF'D., 907 F.2d
322 (2d Cir. 1990). Second, two other provisions of the Declaration contemplate
that one shareholder may own more than 9.8% of the Trust's shares and thus
conflict with Bylaw sec. 9.2. which purports to limit ownership to 9.8%. Article
12 of the Declaration of Trust permits cumulative voting if a shareholder
obtains 30% of the outstanding shares of the Trust. Article 13 of the
Declaration of Trust sets forth rules for transactions between the Trust and "a
beneficial holder of 10% or more of the Trust's outstanding shares." The
inconsistencies between Article IX and the Declaration of Trust render the
bylaws void. REIT Act sec. 9.10; 1989 REIT Act sec. 9.
The Trust argues that the Court should ignore the inconsistencies between
Article IX and the Declaration of Trust because Article IX is intended to
protect the Trust's tax status. In support of their argument, the Trust claims
that the excess share provision is consistent with an "industry standard of
limiting share ownership to comply with the Internal Revenue Code." See Response
at 16. The REIT Act, however, does not permit bylaws to be inconsistent with
declaration of trust provisions merely because the bylaws are intended to
protect the tax status of a REIT. As evidence of the industry standard, the
Trust points to the bylaws and declarations of trust of three other Texas REITs:
Columbus Realty Trust, Weingarten Realty Investors, and Camden Property Trust.
The excess share provisions of these other Texas REITS uniformly appear in their
declarations of trust. Amended and Restated Declaration of Trust, Camden
Property Trust, Article Nineteen; Amended and Restated Declaration of Trust of
Columbus Realty Trust, Article Nineteen; Restated Declaration of Trust of
Weingarten Realty Investors, Article Eighteen.
B. CONFLICTS WITH REIT ACT
1. PROVISIONS MUST APPEAR IN THE DECLARATION OF TRUST
The Bylaws are also invalid because the Texas REIT Act requires provisions
such as those found in Article IX of the Bylaws to appear in the Declaration of
Trust instead of the Bylaws. Fletcher Cyc. Corp. sec. 4189 ("The general rule is
that when the applicable statute commands that a provision which governs
shareholder rights be set out in the certificate of incorporation, but the
provision is not so set out, a bylaw which purports to regulate shareholder
rights is void.") This requirement is not a mere technicality, but an extremely
important protection for shareholders, because the RElT Act reserves to
shareholders the right to amend a declaration of trust. SEE REIT Act sec.
22.20(A).
<PAGE>
First, the qualification that excess shares are different from other shares
that appears in sec. 9.5 of the Bylaws must appear in the Declaration of Trust.
REIT Act sec. 3.30(A) (5) ("A real estate investment trust may provide by its
declaration of trust for any other preferences, rights, restrictions, including
restrictions of transferability ..."); 1989 REIT Act sec. 3. 1 (A)(5). Second,
the provision granting a redemption right to the trust for all excess shares
which appears in sec. 9.5.7 must appear in the Declaration of Trust. REIT Act
sec. 3.30 (A)(2); 1989 REIT Act sec. 3.1 (A)(2). Third, the provisions limiting
the rights of holders of excess shares to receive dividends which appear in sec.
9.5.3 must appear in the Declaration of Trust. REIT Act sec. 14.10(A); 1989 REIT
Act sec. 3.1(A)(6). Fourth, the provisions limiting the rights of excess shares
to vote at shareholder meetings which appear in sec. 9.5.5 of the Bylaws must
also appear in the Declaration of Trust. REIT Act sec. 13.10(A)(1)(a) (each
outstanding share shall be entitled to one vote except to the extent that the
declaration of trust limits or denies voting rights to the holders of the shares
of any class); 1989 REIT Act sec. 13(A).
2. RESTRICTION ON TRANSFER OF SHARES
In addition, Bylaw Article IX is invalid because sections 9.1 and 9.5.6
restrict the transfer of shares which were issued prior to adoption of the
restriction. Bylaw sec. 9.l ("Limitations on Transfer." "any purported transfer
of shares that, if effective, would result in a violation of sec. 9.2...shall be
void ab initio"); Bylaw sec. 9.5.6 ("Restrictions on Transfer:" "Excess shares
shall not be transferrable."). The Texas REIT Act invalidates restrictions on
transfers of securities issued before the adoption of the restriction unless the
holder of the security voted in favor of the restriction or was a party to the
agreement imposing the restriction. REIT Act sec. 7.40(B); 1989 REIT Act sec.
8(E) ("no real estate investment trust may impose restrictions on the sale or
other disposition of its shares and on the transfer thereof"); 1989 REIT Act
sec. 19 (all shares of a REIT "shall be transferable"). All of the Trust's
outstanding shares were issued prior to the adoption of Bylaw Article IX in
February 1994. None of the bylaw amendments adopted by Wolcott and Bricker in
1994 and 1995 were submitted to shareholders for approval. Therefore, none of
the holders of the Trust's stock voted in favor of the Article IX restrictions.
While section 7.40(E)(5) notes that a restriction on the transfer of shares is
valid "if it reasonably maintains...any tax advantage to the real estate
investment trust," that subsection does not supplant the conflicting provisions
in section 7.40(B). Therefore, Article IX's purported restrictions on transfer
are not valid.
The Trust presents two arguments in response to Defendants' argument that
the restriction on the transferability of excess shares invalidates the bylaw
provision. First, the Trust argues that the provision is not a "transfer
restriction" but an "ownership limitation" in that it prevents some ownership
benefits from attaching to excess shares. Therefore, it contends, the shares
remain transferrable and the provision does not violate the REIT Act. The Trust
provides several Private Letter Rulings which hold that ownership limitations
imposed by a REIT to maintain its REIT status do not render its shares
"nontransferable" even though the limitations may limit or preclude transfer of
shares under certain circumstances. Priv. Ltr. Rul. 9552047 (Dec. 29, 1995);
Priv. Ltr. Rul. 9534022 (May 31, 1995); Priv. Ltr. Rul. 9440026 (July 11, 1994);
Priv. Ltr. Rul. 8921067 (Feb. 28, 1989).
<PAGE>
These rulings do not alter the REIT Act's provisions on the transfer of
shares. These rulings address whether ownership limitations similar to Bylaw
Article IX's contravene the Internal Revenue Code's ("the IRC") requirement that
"the beneficial ownership of [a REIT be] evidenced by transferrable shares." 26
U.S.C sec. 856(a)(2). The rulings hold that such ownership limitations do not
violate the IRC because the shares of the REIT stock will continue to be traded.
The rulings reassert the requirement that the ownership restrictions be
enforceable under state law. Priv. Ltr. Rul. 9552047 ("As long as the ownership
restrictions are valid under the laws of state X...."); Priv. Ltr. Rul. 9534022
("Provided that the ownership restrictions summarized above are enforceable
under state law..."); Priv. Ltr. Rul. 944026 ("provided that the ownership
restrictions are enforceable under state law."). While the IRC requires only
that shares of a REIT be generally characterized as "transferable," the Texas
REIT Act prohibits any retroactive restriction on the transfer of shares unless
the shareholders approved of the restriction.
Second, the Trust contends that, even if the provision is a transfer
restriction, it is valid because the limitation is necessary to protect the tax
status as a REIT. For this proposition it quotes the section 4(G) of the 1989
REIT Act. REIT Act sec. 4.10(I) ("To the extent any provision of this Act is
contrary to or inconsistent with the sections of the Internal Revenue Code of
1986 (or any successor statute) which relate to or govern real estate investment
trusts or the regulations adopted under those sections, or requires any trust
formed hereunder to take (or prohibits any trust formed hereunder from taking)
any action required to secure or maintain its status as a real estate investment
trust under such sections or regulations, the sections and regulations of the
Internal Revenue Code of 1986 (or any successor statute) shall prevail over the
provisions of this Act as to any real estate investment trust qualifying or
attempting to qualify under such sections and regulations."); 1989 REIT Act sec.
4(G) (almost identical provision).
This argument misreads section 4.10(I) of the REIT Act. First, section
4.10(I) applies only to override provisions of the REIT Act that "prohibit any
trust...from taking...any action required to secure or maintain its status as a
real estate investment trust" under the Internal Revenue Code. The sections of
the REIT Act invoked by Pure World do not prohibit any of Article IX's specific
mandates. They require that those provisions appear in the Declaration of Trust
or be approved by the Trust's shareholders. Second, the provisions in Article IX
are not REQUIRED to secure or maintain the Trust's REIT status. Indeed, the
Trust successfully maintained its REIT status before Article IX was adopted. It
does not follow that merely because an ownership limitation such as Article IX
is one method of ensuring that a REIT complies with the Internal Revenue Code,
that such a provision is "required." Third, section 4.10(I) does not
specifically empower the TRUST MANAGERS to take any steps necessary to protect
the Trust's REIT status. The Trust, acting through its shareholders, may amend
the Declaration of Trust and adopt an ownership limitation similar to Article
IX. Even if section 4.10(I) would ratify an ownership limitation adopted by the
Trust's shareholders, it does not sanction an ownership limitation imposed
unilaterally by the Trust Managers. Fourth, section 4.10(I) does not authorize
ANY ACTION required to maintain the Trust's status as a real estate investment
trust if such act is inconsistent with a provision in the Declaration of Trust.
V. INTERPLEADER ACTION IS IMPROPER
-------------------------------
The Trust Interpleaded the dividend payment of $35,520 attributable to the
880,000 shares of stock that Pure World is indisputably entitled to own. The
Trust argues that if the Trust pays the dividends on the 880,000 lawful shares
and Pure World has already received dividends on other shares, the Trust will
have paid out dividends on excess shares in violation of the bylaws and could
face liability for "wrongful payment of dividends." The Trust argues that, even
if there is not a "substantial danger of multiple LIABILITY," potential vexation
and expense of multiple LITIGATION warrant the use of an interpleader. 7 Wright,
Miller & Kane, FEDERAL PRACTICE & PROCEDURE 2d, sec. 1704 (1986) (emphasis
added).
<PAGE>
Federal Rule of Civil Procedure 22 permits an interpleader claim to be
filed against "persons having claims against the plaintiff...when their claims
are such that the plaintiff is or may be exposed to double liability." The
plaintiff must legitimately fear multiple liability for a single fund. DUNBAR V.
UNITED STATES, 502 F.2d 506, 511-12 (5th Cir. 1974) (party requesting
interpleader failed to demonstrate that he has been or may be subject to adverse
claims); GENERAL ELECTRIC CREDIT CORP. V. T.R. GRUBBS, 447 F.2d 286, 288 (5th
Cir. 1971), REVERSED ON OTHER GROUNDS 405 U.S. 699 (1972) (to invoke doctrine of
interpleader party must show either (1) that there is a risk of double payment
on a single liability; or (2) that there are several claims that exceed that
party's limited liability); FDIC V. HOWSE, 802 F. Supp. 1554, 1565 (S.D. Tex.
1992) (Harmon, J.) (interpleader not appropriate since not "exposed to the
danger of multiple liability."); MOBIL EXPLORATION & PRODUCING V. UNITED STATES
ABATEMENT CORP., 1991 WL 211516 * 1(E.D. La. 1991) (citing GENERAL ELECTRIC
CREDIT for above); INTERFIRST BANK DALLAS, N.A. V. PUROLATOR COURIER CORP., 608
F. Supp. 351, 352 (N.D. Tex. 1985) (Fish, J.) (citing GENERAL ELECTRIC CREDIT
for above). Therefore, the Trust's interpleader is improper because the Trust:
(1) does not allege who the record owner of the excess shares are; (2) does not
specify the number of excess shares owned by Defendants; (3) has not alleged
that any other person has made or may make a claim to these dividends; and (4)
has failed to plead any facts that suggest it is in danger of exposure to
multiple liability or conflicting claims.
VI. CONCLUSION
----------
The Trust's request for a continuance is DENIED. Defendants' Motion for
Summary Judgment--Excess Shares is GRANTED based on the summary judgment
evidence and because the Bylaw provisions restricting share ownership are
invalid. Furthermore, Defendants' Motion for Summary Judgment on the Trust's
interpleader claim is GRANTED because, under the circumstances of this case,
interpleader is inappropriate.
Therefore, the Trust's causes of action for declaratory judgment (Count
VI), money had and received (Count VII), unjust enrichment (Count VII), and
interpleader (Count X, located in Plaintiff's First Supplemental Complaint) are
DISMISSED.
<PAGE>
SO ORDERED
DATED: September 9, 1996.
/s/ Barefoot Sanders
---------------------------
BAREFOOT SANDERS
SENIOR U.S. DISTRICT JUDGE
NORTHERN DISTRICT OF TEXAS
<PAGE>
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.
Dated: September 11, 1996
PURE WORLD, INC.
/s/ John W. Galuchie, Jr.
-------------------------
John W. Galuchie, Jr.
Executive Vice President
