UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 12)
First Union Real Estate Equity and Mortgage Investments
- --------------------------------------------------------------------------------
(Name of Issuer)
Shares of Beneficial Interest, $1.00 par value
- --------------------------------------------------------------------------------
(Title of Class of Securities)
337400105
-----------------------------------------------
(CUSIP Number)
Stephen Fraidin, P.C.
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
(212) 859-8140
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications)
January 26, 1998
-----------------------------------------------
(Date of Event which Requires Filing of this Statement)
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 box |_|.
Check the following box 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 page 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).
SEC1746(12-91)
Page 1 of 5 pages
<PAGE>
SCHEDULE 13D
CUSIP NO. 33740015 PAGE 2 of 5 PAGES
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Gotham Partners, L.P.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X]
(b) [ ]
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 New York, U.S.A.
NUMBER OF 7 SOLE VOTING POWER
2,501,951 Shares
SHARES
BENEFICIALLY 8 SHARED VOTING POWER
0
OWNED BY EACH
REPORTING 9 SOLE DISPOSITIVE POWER
2,501,951 Shares
PERSON WITH
10 SHARED DISPOSITIVE POWER
0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,501,951 Shares
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) [ ]
EXCLUDES CERTAIN SHARES*
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
8.89%
14 TYPE OF REPORTING PERSON*
PN
*SEE INSTRUCTIONS
Page 2 of 5 pages
<PAGE>
SCHEDULE 13D
CUSIP NO. 337400105 PAGE 3 of 5 PAGES
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Gotham Partners II, L.P.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X]
(b) [ ]
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 New York, U.S.A.
NUMBER OF 7 SOLE VOTING POWER
30,449 Shares
SHARES
BENEFICIALLY 8 SHARED VOTING POWER
0
OWNED BY EACH
REPORTING 9 SOLE DISPOSITIVE POWER
30,449 Shares
PERSON WITH
10 SHARED DISPOSITIVE POWER
0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
30,449 Shares
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) [ ]
EXCLUDES CERTAIN SHARES*
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0.11%
14 TYPE OF REPORTING PERSON*
PN
*SEE INSTRUCTIONS
Page 3 of 5 pages
<PAGE>
This Amendment No. 12 amends and supplements the Statement on
Schedule 13D (the "Schedule 13D") relating to the shares of Beneficial
Interest, par value $1.00 per share ("Shares"), of First Union Real
Estate Equity and Mortgage Investments, an Ohio business trust (the
"Company") previously filed by Gotham Partners, L.P. ("Gotham") and
Gotham Partners II, L.P. ("Gotham II" and together with Gotham, the
"Reporting Persons"), both New York limited partnerships. Capitalized
terms used and not defined in this Amendment have the meanings set
forth in the Schedule 13D.
Except as specifically provided herein, this Amendment does not
modify any of the information previously reported on the Schedule 13D.
Item 4 is hereby amended to add the following information:
"Item 4. Purpose of the Transaction
On January 23, 1998, counsel for the Reporting Persons filed a
Motion for Preliminary Injunction in the United States District Court
for the Northern District of Ohio, Eastern Division (the "U.S.
District Court"). A copy of such Motion for Preliminary Injunction is
attached as Exhibit 18 hereto and incorporated herein by this
reference.
On January 23, 1998, counsel for the Reporting Persons filed a
Memorandum in Response to Motion for Expedited Hearing and
Cross-Motion to Schedule Matters for that Hearing in the U.S. District
Court. A copy of such Memorandum is attached as Exhibit 19 hereto and
incorporated herein by this reference.
On January 26, 1998, counsel for the Reporting Persons filed an
Amended Answer and Counterclaims in the U.S. District Court relating
to the Company's Complaint for Preliminary Injunction, Permanent
Injunction and Declaratory Relief, removed by the Reporting Persons to
the U.S. District Court on January 20, 1998. A copy of such Amended
Answer and Counterclaims is attached as Exhibit 20 hereto and
incorporated herein by this reference."
Item 7 is hereby amended to add the following information:
"Item 7. Material to be Filed as Exhibits
18. Motion for Preliminary Injunction filed in the U.S.
District Court by counsel for the Reporting Persons on January 23,
1998.
19. Memorandum in Response to Motion for Expedited Hearing and
Cross-Motion to Schedule Matters for that Hearing filed in the
U.S. District Court by counsel for the Reporting Persons on January
23, 1998.
20. Amended Answer and Counterclaims filed in the U.S.
District Court by counsel for the Reporting Persons on January 26,
1998."
Page 4 of 5 pages
<PAGE>
After reasonable inquiry and to the best of our knowledge and
belief, the undersigned certify that the information set forth in this
statement is true, complete and correct.
January 26, 1998
GOTHAM PARTNERS, L.P.
By: Section H Partners, L.P.,
its general partner
By: Karenina Corporation,
a general partner of Section H Partners,
L.P.
By: /s/ William A. Ackman
-------------------------------
William A. Ackman
President
By: DPB Corporation,
a general partner of Section H
Partners, L.P.
By: /s/ David P. Berkowitz
-------------------------------
David P. Berkowitz
President
GOTHAM PARTNERS II, L.P.
By: Section H Partners, L.P.,
its general partner
By: Karenina Corporation,
a general partner of Section H
Partners, L.P.
By: /s/ William A. Ackman
-------------------------------
William A. Ackman
President
By: DPB Corporation,
a general partner of Section H
Partners, L.P.
By: /s/ David P. Berkowitz
-------------------------------
David P. Berkowitz
President
Page 5 of 5 pages
EXHIBIT 18
UNITED STATES DISTRICT
COURT NORTHERN DISTRICT OF OHIO
EASTERN DIVISION
)
FIRST UNION REAL ESTATE EQUITY AND )
MORTGAGE INVESTMENTS, )
)
Plaintiff, ) CIVIL ACTION NO. 98 CV 0105
)
- against - ) JUDGE ALDRICH
)
GOTHAM PARTNERS, L.P., et al., )
)
Defendants and Counterclaimants. )
)
GOTHAM'S MOTION FOR PRELIMINARY INJUNCTION
Defendants and Counterclaimants Gotham Partners, L.P. and Gotham
Partners II, L.P. (collectively, "Gotham"), move this Court, pursuant
to Rule 65 of the Federal Rules of Civil Procedure, for an order
preliminarily enjoining plaintiff First Union Real Estate Equity and
Mortgage Investments ("First Union"), its directors, officers,
Trustees, successors, agents, servants, subsidiaries, employees and
attorneys, and all persons acting in concert or participating with
them, from:
1. making any further solicitation of First Union shareholders in
connection with First Union's Annual Meeting scheduled for April 14,
1998 ("Annual Meeting") unless and until First Union has made the
required filings under Section 14(a) of the Securities Exchange Act of
1934 ("the 1934 Act"), 15 U.S.C. Section 78n(a), and the SEC Rules
promulgated thereunder;
2. making material misrepresentations and false and misleading
statements in the course of soliciting proxies for First Union shares;
3. taking any actions that would dilute or interfere with
Gotham's voting, nomination, and proposal rights or in any other way
discriminate against Gotham in the exercise of its rights with respect
to its First Union shares; and
4. from taking any steps to impede or frustrate the ability of
First Union's stockholders to consider and make their own
determination on Gotham's nominations and proposal being submitted at
the Annual Meeting or taking any other action to thwart or interfere
with the proxy contest for the Annual Meeting;
5. from taking actions to deprive Gotham of its right to receive
dividends, interest, or other distributions on the alleged ground that
Gotham's shares are Excess Securities under Article VI, Section 6 of
First Union's By-Laws (the "By-Laws");
6. from obstructing Gotham's proposal to increase the size of
First Union's Board of Trustees ("the Board") and Gotham's nomination
of candidates to sit on the Board on the alleged ground that the
proposal and nomination are in violation of First Union's Declaration
of Trust (the "Declaration of Trust");
7. from obstructing or preventing Gotham's solicitation of
proxies on behalf of its proposal and its nominees on the alleged
ground that such solicitation would violate the terms and/or
conditions of the Declaration of Trust and By-Laws.
The bases for Gotham's Motion will be set forth more fully in
Gotham's forthcoming Memorandum in Support of Gotham's Motion for
Preliminary Injunction with supporting affidavits, to be served and
filed in accordance with this Court's scheduling instructions.
Dated: January 23, 1998
Cleveland, Ohio
OF COUNSEL: /s/ Michael J. Garvin
---------------------------------
HAHN LOESER & PARKS LLP David C. Weiner (0013351)
Michael J. Garvin (0025394)
3300 BP America Building
200 Public Square
Cleveland, Ohio 44114-2301
(216) 621-0150
- and -
OF COUNSEL:
FRIED, FRANK, HARRIS, SHRIVER /s/ Alexander R. Sussman
& JACOBSON ----------------------------------
Alexander R. Sussman(FN1)
25th Floor
One New York Plaza
New York, New York 10004-1980
(212) 859-8000
Attorneys for Defendants
and Counterclaimants
TO: Frances Floriano Goins
SQUIRE, SANDERS & DEMPSEY L.L.P.
Attorneys for Plaintiff
4900 Key Tower
127 Public Square
Cleveland, Ohio 44114-1304
- --------
[FN]
1 Application to appear pro hac vice being submitted.
</FN>
CERTIFICATE OF SERVICE
A copy of the foregoing Gotham's Memorandum in Response was sent
by messenger to Frances Floriano Goins, Squire, Sanders & Dempsey
L.L.P., 4900 Key Tower, 127 Public Square, Cleveland, Ohio 44114-1304,
attorneys for Plaintiff, this 23rd day of January, 1998.
/s/ Michael J. Garvin
-----------------------------------
One of the attorneys for Defendants
and Counterclaimants
EXHIBIT 19
IN THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION
FIRST UNION REAL ESTATE EQUITY ) CIVIL ACTION NO. 98 CV 0105
AND MORTGAGE INVESTMENTS )
) JUDGE ANN ALDRICH
Plaintiff, )
)
v. )
)
GOTHAM PARTNERS, L.P., et al. )
)
Defendants and Counterclaimants. )
GOTHAM'S MEMORANDUM IN RESPONSE TO
MOTION FOR EXPEDITED HEARING AND CROSS-MOTION
TO SCHEDULE ADDITIONAL MATTERS FOR THAT HEARING
Defendants and Counterclaimants ("Gotham") submit this memorandum
in response to First Union's Motion for Expedited Hearing on Removal
and Remand, filed on January 21, 1998. Gotham will file its memorandum
and affidavits in opposition to First Union's motion to remand within
the time permitted under the Local Rules, or at such earlier time as
shall be established by the Court. Gotham also has served and filed
today its Motion for Preliminary Injunction to be briefed and heard on
a schedule convenient to this Court, which, in addition to seeking
relief on Gotham's federal proxy counterclaims, also seeks relief on
the identical issues First Union raises in its Complaint and in its
state court motion papers. Furthermore, Gotham hereby requests a Case
Management Conference under Local Rule 16.3 at a time convenient for
this Court.
Gotham agrees that an expedited hearing should be scheduled.
However, Gotham submits that the hearing date could be set by the
Court as late as March 10, 1998, without prejudicing any of the
parties. This would allow the Court sufficient time to rule on the
issues presented at the hearing and allow the parties ample time
before First Union's April 14, 1998 Annual Meeting to implement any
resulting orders by the Court. In addition, Gotham requests that any
hearing to be scheduled on the motion to remand also consider the
parties' motions for preliminary injunctive relief, including (1)
plaintiff First Union's requests for relief made in the state court,
which are mirror-image claims to Gotham's counterclaims on which
Gotham seeks relief; and (2) Gotham's motion for a preliminary
injunction.
I. FIRST UNION'S MOTION TO REMAND IS MERITLESS
We here summarize for the Court's benefit the points that Gotham
will establish in responding to First Union's motion to remand.
Pursuant to 28 U.S.C. Sections 1441 and 1446, Gotham removed this
action based on this Court's diversity jurisdiction, because "the
matter in controversy exceeds the sum or value of $75,000, exclusive
of interests and costs, and is between citizens of different States."
See 28 U.S.C. Section 1332(a)(1). Gotham properly complied with the
procedure under 28 U.S.C. Section 1446(a) in filing a Notice of
Removal in this Court "containing a short and plain statement of the
grounds for removal...."
On the merits of the removal, as will be demonstrated by
affidavit in Gotham's response to First Union's motion to remand or,
if necessary, at the hearing on that motion, First Union's complaint
is within the diversity jurisdiction of this court because:
1) There is complete diversity of citizenship between the
parties, since none of the Gotham defendants' general partners or
limited partners, and none of the entities comprising any of them, are
citizens of Ohio, for purposes of 28 U.S.C. Section 1332; and
2) The sum or value of the matter in controversy in First Union's
Complaint far exceeds the $75,000 jurisdictional amount, as
demonstrated on the face of First Union's Complaint and its motion
papers. According to its averments, absent the relief demanded in the
Complaint, (a) "change in control" provisions in First Union's credit
and other agreements would be triggered causing "irreparable damage,"
Compl. Paragraph 46, and (b) First Union, a company with a $1 billion
enterprise value and over $500 million market capitalization, and its
stockholders will suffer "irreparable harm." First Union's State Court
Motion for Preliminary Injunction at 2-3 (appended to Mem. In Support
of Motion to Remand as Ex. A.) It is hard to imagine how such
irreparable damage and harm could have a value of less than $75,000 to
First Union and its stockholders.
Moreover, First Union seeks a determination that Gotham's shares
are "Excess Securities pursuant to ... Article VI, Section 6 of First
Union's By-Laws, that have no voting rights ... and are not entitled
to receive dividends, interest or other distributions." Id. at
Paragraph 1. Such relief, which would damage Gotham by depriving it of
its voting rights on stock worth approximately $40 million and
confiscating over $1 million per year in dividends received by Gotham
on that stock, while benefitting First Union annually by over $1
million in saved dividend payments, obviously more than satisfies the
$75,000 jurisdictional requirement.
II. THE EXPEDITED HEARING SHOULD CONSIDER THE
PARTIES' REQUESTS FOR PRELIMINARY RELIEF
The underlying subject matter of this action is the upcoming
proxy contest for election of Trustees at First Union's Annual Meeting
to be held on April 14, 1998 ("Annual Meeting"). Gotham seeks
protection of its proxy rights in this Court. Indeed, First Union
explicitly is attempting to preclude Gotham from mounting the proxy
contest at all. See id. at 3-4 (conceding that First Union's relief
concerns an "inevitable proxy contest"); see also First Union's Motion
for an Expedited Hearing at pp. 2-3 (acknowledging that the relief
First Union seeks is intertwined with the proxy contest).
Accordingly, Gotham's counterclaims in its original Answer (and
in its Amended Answer and Counterclaims) include allegations of proxy
violations by First Union for which this court has exclusive
jurisdiction under Section 27 of the Securities Exchange Act of 1934,
15 U.S.C. Section 78aa. See Am. Ans. and Ccls. at 9-16, 21-22 (Counts
I - III, Wherefore Paragraphs (a)-(e)). Gotham's motion for preliminary
injunction seeks to redress those proxy violations to ensure First
Union's future compliance with the SEC's proxy rules.
The parties' respective state law claims relate to the upcoming
proxy contest and both parties seek injunctive relief concerning what
nominations may be made and voted upon and who may vote at the Annual
Meeting. Compare Compl., pp. 13-14, Paragraph A with Am. Ans. and
Counterclaims, pp. 22-23 (Paragraphs (f)-(h)). Those issues are intertwined
with Gotham's proxy violation counterclaims which can be heard only in
federal court. Gotham respectfully submits that, even if the Court
finds that it does not have diversity jurisdiction over the state law
claims, it clearly has supplemental jurisdiction over them, as both
parties' state law claims form part of the same case or controversy.
See 28 U.S.C. Section 1367.
Consequently, this Court will be ruling on Gotham's proxy
violation claims (and First Union's proxy claims, if they have any),
and will be hearing Gotham's state law claims as well. We therefore
respectfully suggest, as a matter of judicial administration and
economy, as well as to avoid potentially conflicting decisions between
this Court and the state court, that all preliminary requests for
relief should be adjudicated at the same hearing at which this Court
hears First Union's motion to remand. Moreover, we further suggest
that an appropriate briefing schedule should be proposed by the
parties and so ordered by the Court. As noted earlier, Gotham submits
that the requested hearing may be scheduled on any date prior to March
10, 1998, without prejudice to any party, in view of the April 14
Annual Meeting date.
CONCLUSION
For all of the foregoing reasons, Gotham respectfully requests
that this Court schedule a Case Management Conference at this Court's
convenience, at which this Court may set a date on or before March 10,
1998, to hear the motion to remand and Gotham's and First Union's
respective motions for preliminary injunction, and an appropriate
briefing schedule for those motions.
Respectfully submitted,
Dated: January 23, 1998
Cleveland, Ohio
OF COUNSEL: /s/Michael J. Garvin
-----------------------------
David C. Weiner (0013351)
HAHN LOESER & PARKS LLP Michael J. Garvin (0025394)
3300 BP America Building
200 Public Square
Cleveland, Ohio 44114-2301
(216) 621-0150
- and -
OF COUNSEL:
/s/ Alexander R. Sussman
FRIED, FRANK, HARRIS, SHRIVER -----------------------------
& JACOBSON Alexander R. Sussman(FN1)
25th Floor
One New York Plaza
New York, New York 10004-1980
(212) 859-8000
Attorneys for Defendants
and Counterclaimants
- --------
[FN]
1 Application to appear pro hac vice being submitted
</FN>
CERTIFICATE OF SERVICE
A copy of the foregoing Gotham's Memorandum in Response was sent by
messenger to Frances Floriano Goins, Squire, Sanders & Dempsey L.L.P., 4900
Key Tower, 127 Public Square, Cleveland, Ohio 44114-1304, attorneys for
Plaintiff, this 23rd day of January, 1998.
/s/ Michael J. Garvin
-----------------------------------
One of the attorneys for Defendants
and Counterclaimants
EXHIBIT 20
IN THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION
FIRST UNION REAL ESTATE EQUITY ) CIVIL ACTION NO. 98CV0105
AND MORTGAGE INVESTMENTS )
55 Public Square, Suite 1900 )
Cleveland, Ohio 44113, )
) JUDGE ALDRICH
Plaintiff, )
)
v. )
) AMENDED
GOTHAM PARTNERS, L.P. ) ANSWER AND
110 East 42nd Street ) COUNTERCLAIMS
New York, New York 10017, )
)
and )
)
GOTHAM PARTNERS II, L.P. )
110 East 42nd Street )
New York, New York 10017, )
)
Defendants and Counterclaimants. )
For their Answer and Counterclaims against First Union Real
Estate Equity and Mortgage Investments ("First Union"), Defendants
Gotham Partners, L.P.("Gotham I") and Gotham Partners II, L.P.
("Gotham II") (Gotham I and Gotham II collectively hereinafter the
"Gotham Partnerships") state as follows:
1. Deny each and every allegation of Paragraph 1 of the Complaint
except deny knowledge or information sufficient to form a belief as to
why First Union was formed and admit that First Union is governed by,
among other things, a Declaration of Trust, that its principal place
of business is Cleveland, Ohio, and that its shares are publicly
traded.
2. Admit the allegations of Paragraph 2 of the Complaint.
3. Admit the allegations of Paragraph 3 of the Complaint.
4. Deny each and every allegation of Paragraph 4 of the Complaint.
5. Deny each and every allegation of Paragraph 5 of the Complaint.
6. Deny each and every allegation of Paragraph 6 of the Complaint.
7. Deny each and every allegation of Paragraph 7 of the Complaint.
8. Deny knowledge or information sufficient to form a belief as
to the truth of the allegations contained in Paragraph 8 of the
Complaint.
9. Deny knowledge or information sufficient to form a belief as
to the truth of the allegations contained in Paragraph 9 of the
Complaint.
10. Deny each and every allegation of Paragraph 10 of the
Complaint, except admit that First Union is governed by, among other
things, a Declaration of Trust, which First Union represents is
Exhibit A to the Complaint, and respectfully refer the Court to that
exhibit for its contents.
11. Deny knowledge or information sufficient to form a belief as
to the truth of the allegations contained in Paragraph 11 of the
Complaint, and respectfully refer the Court to the Declaration of
Trust and the By-Laws for their contents.
12. Deny each and every allegation of Paragraph 12 of the
Complaint, except admit that the Gotham Partnerships are owners of
shares of First Union.
13. Deny knowledge or information sufficient to form a belief as
to the truth of the allegations contained in Paragraph 13 of the
Complaint, and respectfully refer the Court to the Declaration of
Trust and the By-Laws for their contents.
14. Deny each and every allegation of Paragraph 14 of the
Complaint, and respectfully refer the Court to the Declaration of
Trust and the By-Laws for their contents.
15. Deny knowledge or information sufficient to form a belief as
to the truth of the allegations contained in Paragraph 15 of the
Complaint, except admit that the Board of Trustees currently consists
of nine trustees.
16. Admit the allegations of Paragraph 16 of the Complaint.
17. Deny each and every allegation of Paragraph 17 of the
Complaint, and respectfully refer the Court to the Declaration of
Trust for its contents.
18. Deny each and every allegation of Paragraph 18 of the
Complaint, except admit that First Union's Annual Meeting for 1998 is
scheduled to take place on or about April 14, 1998.
19. Deny each and every allegation of Paragraph 19 of the
Complaint, except admit that the Gotham Partnerships began acquiring
First Union shares in or about Fall, 1996.
20. Deny each and every allegation of Paragraph 20 of the
Complaint.
21. Admit that Gotham delivered a letter on or about January 8,
1998, to First Union's Secretary and General Counsel and respectfully
refer the Court to the letter for its contents.
22. Deny each and every allegation of Paragraph 22 of the
Complaint, and respectfully refer the Court to the January 8, 1998,
letter for its contents.
23. Admit the allegations of Paragraph 23 of the Complaint.
24. Deny each and every allegation of Paragraph 24 of the Complaint.
25. Deny each and every allegation of Paragraph 25 of the
Complaint, and respectfully refer the Court to the Declaration of
Trust and the By-Laws for their contents.
26. Deny each and every allegation of Paragraph 26 of the
Complaint, and respectfully refer the Court to the parties'
correspondence for its contents.
27. Deny each and every allegation of Paragraph 27 of the Complaint.
28. Deny each and every allegation of Paragraph 28 of the Complaint.
29. Deny each and every allegation of Paragraph 29 of the
Complaint, and respectfully refer the Court to the Declaration of
Trust and the By-Laws for their contents.
30. Deny each and every allegation of Paragraph 30 of the Complaint.
31. Deny each and every allegation of Paragraph 31 of the Complaint.
32. Deny each and every allegation of Paragraph 32 of the
Complaint, and respectfully refer the Court to Article I, Section 7 of
the By-Laws for its contents.
33. Deny each and every allegation of Paragraph 33 of the Complaint.
34. Deny each and every allegation of Paragraph 34 of the Complaint.
35. Deny each and every allegation of Paragraph 35 of the
Complaint, and respectfully refer the Court to Article I, Section 7 of
the By-Laws for its contents.
36. Deny each and every allegation of Paragraph 36 of the
Complaint, except deny knowledge or information sufficient to form a
belief as to the truth of the allegations contained in subparts (a)
and (c).
37. Deny each and every allegation of Paragraph 37 of the Complaint.
38. Deny each and every allegation of Paragraph 38 of the
Complaint, and respectfully refer the Court to the Declaration of
Trust for its contents.
39. Deny each and every allegation of Paragraph 39 of the
Complaint.
40. Deny each and every allegation of Paragraph 40 of the
Complaint.
41. Deny each and every allegation of Paragraph 41 of the
Complaint, and respectfully refer the Court to the Declaration of
Trust for its contents.
42. Deny each and every allegation of Paragraph 42 of the Complaint.
43. Deny each and every allegation of Paragraph 43 of the Complaint.
44. Deny each and every allegation of Paragraph 44 of the Complaint.
45. Deny each and every allegation of Paragraph 45 of the Complaint.
46. Deny knowledge or information sufficient to form a belief as
to the truth of the allegations contained in Paragraph 46 of the
Complaint.
47. Deny knowledge or information sufficient to form a belief as
to the truth of the allegations contained in Paragraph 47 of the
Complaint.
48. Deny knowledge or information sufficient to form a belief as
to the truth of the allegations contained in Paragraph 48 of the
Complaint.
49. Deny knowledge or information sufficient to form a belief as
to the truth of the allegations contained in Paragraph 49 of the
Complaint.
50. Deny each and every allegation of Paragraph 50 of the Complaint.
51. Repeat and reallege their responses to Paragraphs 1 through
50 of the Complaint as if fully set forth herein.
52. Deny each and every allegation of Paragraph 52 of the
Complaint, except admit that a real and substantial controversy exists
between the parties.
53. Deny each and every allegation of Paragraph 53 of the Complaint.
54. Repeat and reallege their responses to Paragraphs 1 through
53 of the Complaint as if fully set forth herein.
55. Deny each and every allegation of Paragraph 55 of the Complaint.
56. Deny each and every allegation of Paragraph 56 of the Complaint.
57. Deny each and every allegation of Paragraph 57 of the Complaint.
58. Deny each and every allegation of Paragraph 58 of the Complaint.
As and For a First Affirmative Defense:
59. The Complaint fails to state any claim upon which relief may
be granted.
As and For a Second Affirmative Defense:
60. Plaintiff's purported claims are barred by the doctrine of
laches.
As and For a Third Affirmative Defense:
61. Plaintiff's purported claims are barred by waiver and
estoppel.
As and For a Fourth Affirmative Defense:
62. Plaintiff's purported claims are barred by the doctrine of
unclean hands and breaches of fiduciary duty.
As and For a Fifth Affirmative Defense:
63. The relief sought by Plaintiff is barred by or conflicts with
Ohio and federal law.
COUNTERCLAIMS
The Gotham Partnerships, as and for their counterclaims against
First Union, allege upon knowledge as to themselves and their own
acts, and upon information and belief as to all other matters as
follows:
64. These counterclaims arise out of First Union's unlawful
attempt to strip shareholders of their voting rights and to wrest from
Gotham I its right to present a proposal for consideration by all
First Union shareholders and to nominate qualified nominees.
65. As more specifically alleged below, First Union's
heavy-handed and unlawful actions to squelch shareholder democracy are
part of a larger pattern of management's entrenchment tactics and
breaches of fiduciary duty.
66. The Gotham Partnerships seek injunctive and declaratory
relief that would, inter alia: (a) prohibit First Union from further
solicitations unless and until it makes all necessary and proper
filings with the SEC as required under Rule 14(a) of the Securities
Exchange Act of 1934 and from making material misrepresentations in
violation of the proxy rules (and requiring First Union to correct
prior misleading statements); (b) enjoin First Union from continuing
to interfere with the Gotham Partnerships' rights under the proxy
rules and the Declaration of Trust to vote, to nominate qualified
nominees and to make proposals; (c) declare that the Gotham
Partnerships are in compliance with federal proxy rules and the terms
of First Union's Trust and By-Laws; and (d) declare that Gotham I is
entitled to receive First Union's records of stockholders to enable it
to solicit proxies with respect to its nominations and proposal.
Additionally, the Gotham Partnerships seek damages for harm caused to
them as a result of First Union's wrongdoing.
PARTIES
67. Gotham I and Gotham II are New York limited partnerships
whose principal place of business is New York, New York.
68. First Union purports to be an Ohio business trust with its
principal place of business in Cleveland, Ohio. First Union qualifies
as a real estate investment trust ("REIT") under the Internal Revenue
Code of 1986, as amended (the "IRC"). Shares of First Union are traded
on the New York Stock Exchange.
69. The Gotham Partnerships own 9.0% of First Union's shares.
70. The Gotham Partnerships are First Union's largest
shareholders.
JURISDICTION AND VENUE
71. This Court has jurisdiction over the subject matter of these
counterclaims pursuant to Section 27 of the Exchange Act, 15 U.S.C.
Section 78aa; 28 U.S.C. Section 1331(a); 28 U.S.C. Section 1332(a); and this
Court's supplemental jurisdiction, 28 U.S.C. Section 1367.
72. Venue is properly laid in this District pursuant to Section
27 of the Exchange Act, 15 U.S.C. Section 78aa and 28 U.S.C. Section
1391(b).
FACTUAL BACKGROUND
73. First Union has done business as a REIT since its creation in
1961. REITs are byproducts of the Real Estate Investment Trust Act of
1960, which amended the IRC to offer special tax treatment to such
entities. In essence, a REIT is a trust in which investors pool
capital for investment in real estate or in real estate mortgage
loans.
74. First Union is one of only a few known REITs in the United
States that have what is called a "paired-share" structure. The
purpose of the paired-share structure is to allow their shareholders
to participate in the economic benefits from the ownership and from
the operations of certain real-estate-intensive operating businesses
(such as hotels, gaming, golf, healthcare, etc.). Non-paired share
REITs are prohibited from investing in operating businesses, and, as a
result, their shareholders do not enjoy the economic benefits of
operating company ownership. In 1984, Congress added a provision to
the IRC barring the further adoption by REITs of this valuable
paired-share structure, but grandfathering those paired-share REITs
already in existence.
75. In light of its public filings and press releases, until very
recently, it appears that management was not aware of its paired-share
REIT status and the value of First Union's structure.
76. The Gotham Partnerships first purchased First Union stock in
or about Fall, 1996.
77. On July 14, 1997, the Gotham Partnerships sent a letter to
First Union's Trustees and the Directors of First Union Management,
Inc. indicating concern with First Union's so-called strategic plan.
In addition, the Gotham Partnerships questioned management's ability
to implement a strategy that would maximize the value of First Union's
paired-share structure, given management's limited experience
acquiring and managing operating businesses.
78. The Gotham Partnerships' concerns arose primarily from (1)
First Union's equity offerings, which were ill-timed, poorly executed
and dilutive; (2) the price paid by First Union for various
acquisitions; and (3) the fact that First Union's CEO James Mastandrea
had told the Gotham Partnerships that he was unwilling to enter into
any transaction that would replace existing management with a new
investor group and management team with the capital and experience to
maximize the value of First Union's structure, regardless of the
potential for such a transaction to create shareholder value.
79. In that letter and a follow-up one dated July 23, 1997, the
Gotham Partnerships requested a meeting with the Trustees and
Directors to discuss their concerns and proposals for maximizing First
Union's value.
80. To date, First Union's Trustees have steadfastly refused to
meet with representatives from the Gotham Partnerships. A meeting
scheduled for December 29, 1997, between representatives of the Gotham
Partnerships and First Union's management was canceled by First
Union's management.
81. Furthermore, in response to the Gotham Partnerships' July
letters, First Union harassed the Gotham Partnerships by sending an
unreasonable written request for highly confidential information about
the makeup of the Gotham Partnerships.
82. Despite the unreasonableness of the request, the Gotham
Partnerships provided additional information responsive to First
Union's request.
83. Later, First Union made further unreasonable information
requests.
84. Furthermore, the Gotham Partnerships are unaware of any other
requests for information by First Union being sent to other entities
similar in nature.
85. For several reasons, including management's failure to
maximize the value of First Union's unique tax structure, on January
8, 1998, Gotham I set forth a proposal involving, among other things,
electing three Gotham I nominees in place of three incumbent trustees,
expanding the Board of Trustees by adding six new positions, and
electing Gotham I's nominees to the six new positions.
86. In making its proposal and putting forth its nominees, Gotham
I fully complied with the requirements contained in First Union's
Declaration of Trust and By-Laws.
87. In response to Gotham I's proposal and nominees, First Union
launched a concerted campaign to solicit shareholders by issuing press
releases attacking the proposal and defending management's
entrenchment tactics.
88. Furthermore, on January 16, 1998, First Union notified Gotham
I that its proposal and nominees allegedly failed to meet the
qualifications and requirements set forth in the Declaration of Trust
and the By-Laws, but First Union's letter merely paraphrased the
By-Laws without offering specific instances of non-compliance.
89. Through a press release issued that same day by First Union,
the Gotham Partnerships learned that First Union had commenced an
action in state court against the Gotham Partnerships.
90. Stripped to its essence, First Union's lawsuit seeks to rob
shareholders, including the Gotham Partnerships, of their voting
rights under the Declaration of Trust by nullifying Gotham I's
proposal and nominees, and by attempting to render non-voting all of
the Gotham Partnerships' shares.
91. This is not the first time that First Union has resorted to
such tactics.
92. In 1995, First Union sued another large shareholder, Richard
Osborne, out of fear that Osborne would seek to oust management.
93. After wasting $1.6 million of First Union's money on needless
litigation, First Union entered into a "settlement agreement," i.e.,
greenmail, whereby First Union sold to Osborne or an entity controlled
by him two office buildings totaling 400,000 square feet and a 475
space parking garage for $8.8 million; provided seller financing for
80% of the purchase price at 8% interest per annum; and repurchased
for over $7 million shares Osborne had accumulated in First Union.
This transaction resulted in a loss of $5.6 million to First Union.
94. Furthermore, in an attempt to dilute the stock, First Union
has engaged in ill-conceived equity offerings and has repeatedly
revised its By-Laws to make it increasingly difficult for shareholders
to exercise their rights under the Declaration of Trust.
95. In order to protect First Union shareholders, the investing
public, and the Gotham Partnerships, First Union must be enjoined
preliminarily and permanently from continuing to interfere with the
Gotham Partnerships' right to submit their proposal to First Union
shareholders for a vote and to proffer a slate of highly qualified
nominees.
COUNT I
(Violations of Section 14(a) of the '34 Act and
the SEC Rules promulgated thereunder)
96. The Gotham Partnerships repeat and reallege the allegations
contained in each of the preceding paragraphs as if fully set forth
herein.
97. The Proxy Rules, including in particular SEC Rules 14a-3,
14a-6, and 14a-11, require First Union to file proxy solicitation
materials in advance of any solicitation, to receive certain required
SEC clearances with respect to such materials, and to make certain
filings containing detailed disclosures about each participant in
First Union's solicitation efforts.
98. First Union has not filed a proxy statement, received the
required SEC clearances, or filed any solicitation materials in
connection with the solicitation of proxies for First Union shares as
required by Section 14(a) of the '34 Act and the Proxy Rules. First
Union has solicited more than ten persons in the course of their
solicitation of proxies.
99. First Union has engaged in and is continuing to engage in the
active solicitation of proxies for First Union shares in violation of
Section 14(a) of the '34 Act and the Proxy Rules.
100. First Union's public statements following Gotham I's notice
of nominations and proposal were materially misleading and omissive in
violation of Section 14(a) of the '34 Act and the Proxy Rules.
101. First Union's unlawful solicitations have caused and will
continue to cause immediate and irreparable harm to Gotham and First
Union's shareholders, for which Gotham has no adequate remedy at law.
COUNT II
(Interference with security holder rights to present
nominations and proposals, in violation of Section 14(a) of
the '34 Act and the SEC Rules promulgated thereunder).
102. Gotham I repeats and realleges the allegations contained in
each of the preceding paragraphs as if fully set forth herein.
103. The Proxy Rules are designed to permit public
securityholders to vote on properly noticed shareholder nominations
and proposals at duly noticed meetings of stockholders.
104. First Union has initiated litigation and is taking other
action through which it seeks nullification of Gotham I's shareholder
nominations and proposal on grounds antithetical to the purposes of
the Proxy Rules.
105. First Union's efforts to prevent Gotham I from submitting
for a stockholder vote its duly noticed nominations and proposal are
causing and will continue to cause immediate and irreparable harm to
Gotham I and First Union's other shareholders, for which Gotham I has
no adequate remedy at law.
COUNT III
(Interference with Suffrage Right of Shareholder in violation of
Section 14(a) of the '34 Act and the SEC Rules promulgated thereunder)
106. The Gotham Partnerships repeat and reallege the allegations
contained in each of the preceding paragraphs as if fully set forth
herein.
107. Section 14(a) of the '34 Act prohibits First Union from
impermissibly burdening the absolute right of shareholders to vote
their shares.
108. First Union has initiated litigation and engaged in other
tactics through which it seeks to strip the Gotham Partnerships'
shares of their voting rights, and to prohibit them from being
considered "for quorum or voting purposes."
109. Such effort by First Union to deny the Gotham Partnerships
their lawful voting rights as shareholders violates Sections 14(a) of
the '34 Act.
110. First Union's effort to deny the Gotham Partnerships
suffrage has caused and will continue to cause immediate and
irreparable harm to the Gotham Partnerships and First Union
shareholders, for which the Gotham Partnerships have no adequate
remedy at law.
COUNT IV
(Violation of Declaration of Trust)
111. The Gotham Partnerships repeat and reallege the allegations
contained in each of the preceding paragraphs as if fully set forth
herein.
112. Section 7.5 of the Declaration of Trust provides that First
Union Beneficiaries of record shall be entitled to vote at any meeting
of the Beneficiaries.
113. First Union has initiated litigation and engaged in other
tactics through which it seeks to strip the Gotham Partnerships'
shares of their voting rights, and to prohibit them from being
considered "for quorum or voting purposes."
114. Such effort by First Union to deny the Gotham Partnerships
their voting rights as shareholders violates the Declaration of Trust.
115. First Union's effort to deny the Gotham Partnerships
suffrage has caused and will continue to cause immediate and
irreparable harm to the Gotham Partnerships and First Union
shareholders, for which the Gotham Partnerships have no adequate
remedy at law.
COUNT V
(For Breach of Fiduciary Duty Directly Affecting the Gotham
Partnerships' Individual Rights as Beneficiaries and Stockholders)
116. The Gotham Partnerships repeat and reallege the allegations
contained in each of the preceding paragraphs as if fully set forth
herein.
117. First Union's management and Trustees have a fiduciary
obligation to preserve its assets and to act prudently in taking
action on First Union's behalf.
118. First Union has violated this duty by wasting assets and
seeking to entrench the position of First Union's current officers and
management in the following respects, among others:
a) attacking Gotham I's nominations and proposal through
unlawful proxy solicitations and through a baseless notice of
deficiency in response to Gotham I' nominations and proposal;
b) authorizing litigation against the Gotham Partnerships
aimed at prohibiting a shareholder vote on Gotham I's proposal
at the upcoming annual meeting;
c) pursuing ill-timed, poorly executed and dilutive equity
offerings;
d) paying an excessive amount for Imperial Parking Company;
e) refusing to enter into any transaction -- despite the
potential for such a transaction to maximize the company's
value -- which would replace existing management with a new
investor group and management team with the capital and
experience to maximize the value of the Company's structure;
f) authorizing the Osborne lawsuit on the basis of trumped-up
charges;
g) spending at least $1.6 million of the shareholders' money
in pursuing the claim and proxy fight against Osborne; and
h) entering into a "settlement agreement," i.e., greenmail,
whereby First Union repurchased for over $7 million 950,000
shares held by Osborne and sold to Osborne or an entity
controlled by him two office buildings totaling 400,000 square
feet and a 475 space parking garage for $8.8 million,
resulting in a loss of $5.6 million to First Union; and
provided seller financing for 80% of the purchase price at 8%
interest per annum.
119. As a proximate result of this gross malfeasance and
entrenchment, First Union's assets have been wasted and First Union
management and Trustees are violating the Gotham Partnerships' rights
as Beneficiaries, causing immediate and irreparable harm for which
they have no adequate remedy at law.
COUNT VI
(Declaratory Judgment)
120. The Gotham Partnerships repeat and reallege the allegations
contained in each of the preceding paragraphs as if fully set forth
herein.
121. A real and substantial controversy exists between the Gotham
Partnerships and First Union concerning the right of the Gotham
Partnerships to make nominations and proposals at the Annual Meeting
and to vote as Beneficiaries of the Declaration of Trust.
122. The Gotham Partnerships are entitled to a declaration of
this Court that the Gotham Partnerships have complied with First
Union's informational requests and Declaration of Trust and By-Law
requirements to the extent they are valid and enforceable; that Gotham
I is entitled to make its nominations and proposal at the Annual
Meeting; and that the Gotham Partnerships are entitled to vote
thereon.
123. Alternatively, the Gotham Partnerships are entitled to a
declaration of this Court that First Union is required to inform
Gotham I sufficiently in advance of the Annual Meeting of any
requirements that Gotham I must fulfill to make its nominations and
proposal, so that it has adequate time to comply and that First
Union's stockholders have adequate time to consider and vote upon
Gotham I's nominations and proposal.
124. In addition, the Gotham Partnerships are entitled to a
declaration of this Court that certain requirements of the Declaration
of Trust and By-Laws are invalid on their face or as applied under
Ohio and federal law and that certain other requirements of the
By-Laws are in conflict with the Declaration of Trust.
125. The Gotham Partnerships are also entitled to a declaration
of this Court that First Union's attempt to apply Declaration of Trust
and By-Law requirements in an unreasonable way, in derogation of the
Gotham Partnerships' federal rights under the proxy rules, and in
violation of First Union's fiduciary obligations is invalid and of no
force or effect.
WHEREFORE, the Gotham Partnerships respectfully request that this
Court enter an order:
(a) preliminarily and permanently enjoining First Union, its
directors, Trustees, officers, employees, agents,
affiliates, partners, participants and all other persons
acting in concert with them, directly or indirectly, from
any solicitation of First Union shareholders within the
meaning of SEC Rule 14a-1(i) with respect to First Union
until First Union has made the proper, complete and
requisite filings required by Section 14(a) of the
Securities Exchange Act of 1934, 15 U.S.C. Section 78na and
the SEC Rules promulgated thereunder, received all SEC
clearances with respect to such filings, and for ten days
thereafter;
(b) ordering that First Union make appropriate disclosures to
correct all of the false and misleading statements it has
heretofore made in its unlawful proxy solicitations, and
that thereafter First Union be prohibited from soliciting
any proxies for First Union shares for an appropriate period
to allow full dissemination of these disclosures to First
Union shareholders;
(c) preliminarily and permanently enjoining First Union from
making future false and misleading statements in the course
of soliciting proxies for First Union shares;
(d) enjoining First Union, its directors, officers, Trustees,
successors, agents, servants, subsidiaries, employees and
attorneys, and all persons acting in concert or
participating with them, from taking any steps to impede or
frustrate the ability of First Union's stockholders to
consider and make their own determination on Gotham I's
nominations and proposal or taking any other action to
thwart or interfere with the proxy contest, including
withholding its records of stockholders;
(e) enjoining First Union, its directors, officers, successors,
Trustees, agents, servants, subsidiaries, employees and
attorneys, and all persons acting in concert or
participating with them, from taking any actions that would
dilute or interfere with the Gotham Partnerships' voting,
nomination, and proposal rights or in any other way
discriminate against the Gotham Partnerships in the exercise
of its rights with respect to its First Union shares;
(f) declaring and adjudging: (i) that the Gotham Partnerships
have complied with First Union's informational requests and
Declaration of Trust and By-Law requirements; that Gotham I
is entitled to make its nominations and proposal at the
Annual Meeting; and that the Gotham Partnerships are
entitled to vote thereon; (ii) alternatively declaring and
adjudging that First Union is required to inform, and
enjoining First Union to inform, Gotham I sufficiently in
advance of the Annual Meeting of the requirements that
Gotham I must fulfill to make its nominations and proposal,
so that it has adequate time to comply and that First
Union's stockholders have adequate time to consider and vote
upon Gotham I's nominations and proposal; or (iii) declaring
and adjudging that any unmet requirements of the Declaration
of Trust and By-Laws are invalid on their face or as applied
under Ohio and federal law;
(g) declaring and adjudging that First Union's attempt to apply
Declaration of Trust and By-Law requirements in an
unreasonable way, in derogation of the Gotham Partnerships'
federal rights under the proxy rules, and in violation of
First Union's fiduciary obligations, is invalid and of no
force or effect.
(h) declaring and adjudging that Gotham I's nominations and
proposal may be presented at the Annual Meeting for a vote;
(i) dismissing the Complaint;
(j) awarding judgment in favor of the Gotham Partnerships on the
counterclaims;
(k) awarding the Gotham Partnerships their costs and
disbursements in this action, including reasonable
attorneys' fees; and
(l) granting such other and further relief as to the Court deems
just and proper.
Dated: January 23, 1998
Cleveland, Ohio
OF COUNSEL: /s/ David C. Weiner
------------------------------
HAHN LOESER & PARKS LLP David C. Weiner (0013351)
Michael J. Garvin (0025394)
3300 BP America Building
200 Public Square
Cleveland, Ohio 44114-2301
(216) 621-0150
- and -
OF COUNSEL:
/s/ Alexander R. Sussman
FRIED, FRANK, HARRIS, SHRIVER ------------------------------
& JACOBSON Alexander R. Sussman(FN1)
25th Floor
One New York Plaza
New York, New York 10004-1980
(212) 859-8000
Attorneys for Defendants
and Counterclaimants
- --------
[FN]
1 Application to appear pro hac vice being submitted
</FN>
CERTIFICATE OF SERVICE
A copy of the foregoing Amended Answer and Counterclaims was sent
by United States Mail (First Class) with a courtesy copy by Fax to
Frances Floriano Goins, Squire, Sanders & Dempsey L.L.P., 4900 Key
Tower, 127 Public Square, Cleveland, Ohio 44114-1304, attorneys for
Plaintiff, this 23rd day of January, 1998.
/s/ Stephen Jay Obie
-----------------------------------
One of the attorneys for Defendants
and Counterclaimants
