UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 26)
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)
April 7, 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).
CUSIP No. 337400105 Page 2 of 7 Pages
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS
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
SHARES 2,601,951 Shares
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY EACH 0
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON WITH 2,601,951 Shares
10 SHARED DISPOSITIVE POWER
0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,601,951 Shares
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) [ ]
EXCLUDES CERTAIN SHARES*
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
8.24%
14 TYPE OF REPORTING PERSON*
PN
*SEE INSTRUCTIONS
CUSIP No. 337400105 Page 3 of 7 Pages
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS
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
SHARES 30,449 Shares
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY EACH 0
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON WITH 30,449 Shares
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)
0.10%
14 TYPE OF REPORTING PERSON*
PN
*SEE INSTRUCTIONS
CUSIP No. 337400105 Page 4 of 7 Pages
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS
Gotham International Advisors, L.L.C.
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
Delaware
NUMBER OF 7 SOLE VOTING POWER
SHARES 370,400 Shares
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY EACH 0
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON WITH 370,400 Shares
10 SHARED DISPOSITIVE POWER
0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
370,400 Shares
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) [ ]
EXCLUDES CERTAIN SHARES*
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
1.17%
14 TYPE OF REPORTING PERSON*
00; IA
*SEE INSTRUCTIONS
This Amendment No. 26 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"), Gotham Partners II, L.P.
("Gotham II"), both New York limited partnerships, and Gotham International
Advisors, L.L.C., a Delaware limited liability company. 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 April 7, 1998, counsel for Gotham and Gotham II filed a Reply
Memorandum in Support of Motion for a Protective Order in the Court of
Common Pleas, Cuyahoga County, Ohio. A copy of such Memorandum is attached
as Exhibit 48 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
48. Reply Memorandum in Support of Motion for a Protective Order filed
in the Court of Common Pleas, Cuyahoga County, Ohio on April 7, 1998."
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.
April 8, 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
GOTHAM INTERNATIONAL ADVISORS, L.L.C.
By: /s/ William A. Ackman
------------------------
William A. Ackman
Senior Managing Member
By: /s/ David P. Berkowitz
------------------------
David P. Berkowitz
Senior Managing Member
Exhibit 48
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IN THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION
GOTHAM PARTNERS, L.P., et al., ) CIVIL ACTION NO. 98 CV 0272
)
) JUDGE NUGENT
Plaintiffs, )
)
v. )
)
FIRST UNION REAL ESTATE EQUITY )
AND MORTGAGE INVESTMENTS, )
)
Defendant. )
GOTHAM'S REPLY MEMORANDUM IN SUPPORT OF MOTION FOR A PROTECTIVE ORDER
Plaintiffs (together "Gotham") submit this reply memorandum in support
of their motion for a protective order. Based on recent developments in the
state court litigation among the parties, there is no need for this Court
to hold any preliminary injunction hearing. First Union Real Estate Equity
and Mortgage Investments v. Gotham Partners, L.P., Case No. 347063 (Ct. of
Common Pleas, Cuyahoga County) (the "State Court Action"). Among other
things, developments in the State Court Action have: (1) mooted the need
for relief upon which Gotham had sought a preliminary injunction from this
Court; and (2) established that there is no factual basis for First Union's
motion in this Court for a preliminary injunction. Consequently, the
harassing and burdensome expedited discovery that First Union Real Estate
Equity and Mortgage Investments ("First Union") seeks should be denied.
I. The Judgment Entry and Order Show That There is No Need for a
Preliminary Injunction Hearing in this Court
After full evidentiary hearings, on Friday, March 27, 1998, Judge
Timothy J. McGinty issued his ruling (the "Judgment Entry," annexed as
Exhibit 1) denying First Union's motion for a preliminary injunction, which
sought to enjoin Gotham, among other things, from submitting for a
stockholder vote at First Union's Annual Meeting Gotham's proposal to
increase the size of First Union's Board of Trustees and Gotham's
nominations to fill the existing and the newly-created board seats.
As First Union has conceded (Exhibit 2 hereto), prior to issuing his
ruling and order Judge McGinty had conducted a "full evidentiary hearing"
at which First Union's claims were "thoroughly briefed," and, accordingly,
his ruling "addresses and disposes of each position taken by First Union
and the evidence offered in support of those positions." Ex. 2 at 2.
Among Judge McGinty's rulings were the following:
1. First Union failed to establish that (a) Gotham's Schedule 13D
filings with the SEC were inaccurate in attesting that Gotham was not a
party to any contract, arrangement, understanding or relationship with any
other person or entity with respect to First Union stock, Judgment Entry at
3; (b) Gotham's Notice of its nominations and proposal was inaccurate in
attesting that Gotham had no knowledge of any other First Union stockholder
that "was known to be supporting its nominations or proposal," when the
Notice was submitted, id. at 8; (c) Gotham, actually, constructively, or
beneficially "has ever owned 9.8%" of First Union's shares, id. at 9; or
(d) that "Gotham then or now endangered First Union's REIT status," the
court noting that "this issue, like the others raised by First Union, are
simply pretextual." Id. at 13. Judge McGinty's ruling thus shows that the
putative factual premise for First Union's motion for a preliminary
injunction in this Court - that Gotham formed an undisclosed "group" with
other stockholders - is nonexistent.
2. "The evidence adduced at this hearing demonstrated that the efforts
of First Union's management following Gotham's July 14, 1997 letter were
primarily motivated by a desire to derail Gotham's efforts to change the
Company's course and replace top management." Id.
3. "First Union's management's efforts to disenfranchise Gotham do not
appear to be designed to protect First Union's REIT status but rather
management." Id. Judge McGinty concluded his opinion by stating that: "All
the shareholders should have a fair opportunity to decide the direction of
their corporation at the April 14, 1998 annual meeting." Id.
In addition, on Tuesday, March 31, 1998, Judge McGinty issued an
agreed order ("State Court Order," Transcript Order annexed as Exhibit 3)
providing, among other things, for a Special Meeting (in lieu of the Annual
Meeting) to be held on May 19, 1998, at which First Union stockholders
would consider Gotham's proposal and nominations. Pursuant to the State
Court Order, First Union is required to fulfill its obligations under
federal law to mail Gotham's proxy solicitation materials to First Union's
shareholders. Although Gotham had previously sought such relief from this
Court through a motion for a preliminary injunction, in light of the State
Court Order there is no need for this Court to address that issue.(FN1)
II. Any Complaints that First Union May Purport to Have Can Be
Addressed Through Disclosures to Shareholders Rather than Through
This Court's Intervention
Apart from the lack of merit in First Union's allegations, there is no
danger of stockholder deception here. First Union has publicly announced
those allegations in addition to asserting them in this litigation. In a
press release announcing Judge McGinty's ruling on March 27, 1998 (annexed
as Exhibit 4), First Union CEO James Mastandrea was quoted as stating,
despite that ruling: "Our position remains the same. As we have said in our
federal court complaint, A GROUP OF HOSTILE SHAREHOLDERS, LED BY GOTHAM,
WANTS TO TAKE OVER CONTROL OF THE BOARD without following the Trust's
long-established rules." Ex. 4 (emphasis added). First Union will
undoubtedly continue to trumpet its "group" accusations during the proxy
contest.
Its ability to do so further obviates any concern that stockholders
will have inadequate information on that issue that would require
intervention by this Court. See, e.g., United Canso Oil & Gas, Ltd. v.
Clark, 497 F. Supp. 111, 115 (S.D.N.Y. 1980) ("highly doubtful" that
stockholders may be misled by alleged concealment of origins and support of
dissident committee in part because of company advertisements discussing
facts during election contest for control). First Union itself has noted
"the prominence of this litigation" and the "ample disclosure by both sides
of their positions" as dispelling any concern that any misleading
statements by First Union have "significantly altered the 'total mix' of
information available to the investing public."(FN2) Similarly, First
Union's ability to state its position on the alleged Gotham "group" will
render immaterial any alleged nondisclosure by Gotham.
The risk of inadequate disclosure will also be eliminated by Gotham's
own proxy disclosure concerning the instant action, since Gotham will
disclose First Union's "group" allegations there as well. Such disclosure
is itself sufficient to defeat First Union's Schedule 13D and proxy
violation claims of Gotham's "group" nondisclosure. See, e.g., Management
Assistance Inc. v. Edelman, 584 F. Supp. 1021, 1032 (S.D.N.Y. 1984)
(observing that "[a]n admission of guilt as to a disputed fact is not
required by the proxy rules" [citations omitted] and noting that
insurgent's election-contest proxy statement disclosure of alleged
fraudulent stock manipulation was sufficient to defeat target's proxy
claim); Avnet, Inc. v. Scope Indus., 499 F. Supp. 1121, 1125-26 (S.D.N.Y.
1980) (disclosure of target's allegation that Schedule 13D filer was an
unregistered investment company held sufficient to defeat Schedule 13D
claim), aff'd, 659 F.2d 1057 (2d Cir. 1981).
First Union has raised other claims in its preliminary injunction
motion: (1) Gotham's alleged failure adequately to disclose its plans and
intentions for First Union (see First Union P.I. Mem. at 17-22); (2)
Gotham's Schedule 13D filings allegedly constituted premature proxy
solicitations (id. at 24-26); (3) Gotham has allegedly made false and
misleading statements to solicit proxies (id. at 26-27); and (4) Gotham
allegedly made an illegal tender offer (id. at 27-29). In its opposing
brief, Gotham debunked those claims as devoid of factual or legal support.
See Gotham's Mem. of Law in Opp., dated March 11, 1998, at 6-12. In
particular, the allegations concerning premature solicitation and Gotham's
purported failure timely to disclose its intentions have obviously been
mooted by the substantial public disclosures that have been made in the
interim by both Gotham and First Union.
Furthermore, Judge McGinty found no wrongful conduct by Gotham, while
concluding that the issues raised by First Union in the state court were
"simply pretextual" and management's efforts were "primarily motivated" by
a desire to entrench management. St. Ct. Op. at 13. Those findings cast
further doubt on the bona fides and merits of First Union's alleged grounds
for preliminary injunctive relief. As noted with respect to First Union's
"group" allegation above, to the extent that First Union has any factual
basis for its allegations, it can state its position in its own proxy
solicitations and, in addition, those allegations will be the subject of
disclosure in Gotham's proxy statement.(FN3) It goes without saying that
the courts should not become a tool for harassment tactics by entrenched
management, particularly where its admitted goal is to prevent or delay a
stockholder vote on the company's future course and leadership. See, e.g.,
Basicomputer Corp. v. Scott, 973 F.2d 507, 511 (6th Cir. 1992) (balance of
harm and public interest are factors in considering preliminary injunction
motion).
III. This Court Should Grant Gotham's Motion for a Protective Order
First Union has requested depositions of three Gotham witnesses and
has subpoenaed a third-party witness in advance of the preliminary
injunction hearing without explaining the need for such discovery. Indeed,
First Union has made no showing that the grounds for its preliminary
injunction motion, which as noted above are nonexistent, require further
discovery on its part. Gotham has already provided extensive discovery to
First Union, which included a complete document production, as well as
Gotham principal William Ackman's detailed off-the-record oral disclosures
and on-the-record cross-examination by First Union during the state court
hearings.
First Union's primary motivation is to further harass and burden
Gotham with additional unnecessary costs and waste of executive time. This
was not the purpose of the federal securities laws. Federal policy in proxy
contests closely parallels the Williams Act policy of neutrality between
bidders and subject companies in that federal law was never intended by
Congress "to provide a weapon for management to discourage takeover bids or
prevent large accumulations of stock which would create the potential for
such attempts," Rondeau, 422 U.S. at 58 (Schedule 13D claim), or "to impose
an unrealistic requirement of laboratory conditions that might make the new
statute [the Williams Act] a potent tool for incompetent management to
protect its own interests against the desires and welfare of the
stockholders," Electronic Specialty Co. v. Int'l Controls Corp., 409 F.2d
937, 948 (2d Cir. 1969) (tender offer claims). See, e.g., GAF Corp., 724
F.2d at 743 (quoting Electronic Specialty in explaining "the policies
underlying SS. 14(a) and Rule 14a-9(a)" of the SEC proxy rules).
To paraphrase the GAF court, "it would be a perversion of the
policies" underlying the SEC proxy rules to permit management to bring
pretextual claims primarily for the purpose of harassing the insurgents in
a proxy contest. Id. at 743. But that is precisely what Judge McGinty found
First Union to be doing in the state court litigation. As noted above, the
timing and facially frivolous nature of First Union's federal claims and
its bizarre flip-flops in procedural posturing in this Court give every
reason to suspect that First Union's tactics here are as pretextual and
entrenchment-driven as they were in the state court action.
Absent a specification of the subject matter of the proposed
depositions, First Union's request can only be viewed as an unwarranted
fishing expedition. Accordingly, Gotham's motion for a protective order
should be granted barring further discovery in this action until after the
preliminary injunction hearing.
If this Court determines that further pre-hearing discovery is
required, Gotham requests that the discovery be limited in scope and time,
as appropriate. Gotham further requests in that event that it promptly
receive First Union's documents responsive to Gotham's document requests
and that Gotham have an equal opportunity to depose First Union's CEO James
Mastandrea and designated First Union Trustees.
CONCLUSION
----------
For all of the foregoing reasons, Gotham respectfully requests its
motion for a protective order staying discovery be granted.
Respectfully submitted,
/s/ Michael J. Garvin
---------------------------
OF COUNSEL: David C. Weiner (0013351)
Michael J. Garvin (0025394)
HAHN LOESER & PARKS LLP
3300 BP America Building
200 Public Square
Cleveland, Ohio 44114-2301
(216) 621-0150
Attorneys for Plaintiffs
OF COUNSEL:
Alexander R. Sussman
John C. Sullivan
FRIED, FRANK, HARRIS, SHRIVER
& JACOBSON
(A Partnership Including Professional Corporations)
25th Floor
One New York Plaza
New York, New York 10004-1980
(212) 859-8000
[FN]
- --------
1 In view of Judge McGinty's rulings and the State Court Order, at this
time Gotham no longer requires the relief it requested in its Amended
Motion for Preliminary Injunction, dated March 4, 1998, and hereby
withdraws that motion. However, in the event First Union pursues its
motion or any amended motion for preliminary injunctive relief in this
Court, Gotham may also assert claims, if immediate relief is required,
for redress of First Union's past and current violations of the proxy
rules and other illegal conduct. In that event, Gotham would file
supplemental papers in support of a renewed motion for a preliminary
injunction. Gotham also reserves its rights as to future conduct or
solicitations that First Union may undertake.
2 First Union's Mem. in Opp. to Gotham's Am. Mot. for Prelim. Inj., filed
March 9, 1998, at 7, quoting Mendell v. Greenberg, 927 F.2d 667, 673
(2d Cir.) (quoting TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438,
449 (1976), op. amended by, 938 F.2d 1528 (1990); see also Gulf Corp.
v. Mesa Petroleum Co., 582 F. Supp. 1110, 1116 (D. Del. 1984)
(determining that there was no threat of irreparable harm because
impact on stockholders of corporation's publications concerning tender
offer would "undoubtedly be dissipated by the discourse in connection
with [the] tender offer.").
3 If the Court were to determine that it is appropriate to hold a
hearing, the interests of all concerned would be better served by
holding that hearing after the stockholders vote. The materiality and
effect on the vote of any claimed misstatements or other illegal
actions will be easier to assess after the vote than today. GAF Corp.
v. Heyman, 724 F.2d 727, 743 (2d Cir. 1983) (materiality of disclosures
at issue must be judged in light of which party wins the vote and the
margin of victory). For this very reason, the courts are extremely
reluctant to grant preliminary injunctive relief in the course of a
proxy contest. See, e.g., Management Assistance, 584 F. Supp. at 1025
n.1 ("Shareholders may view an injunction as a final determination of
wrongdoing and be unduly influenced by it") and the cases cited
therein; Kennecott Copper Corp. v. Curtiss-Wright Corp., 584 F.2d 1195,
1200 (2d Cir. 1978) ("There is a strong likelihood . . . that the
election results were influenced by the criticism of [the defendant]
contained in the district court's election-eve decision.") and the
cases cited therein at 1200-01.
A party is not harmed merely because it is subject to a proxy contest
and any claims it has can be redressed after the election. See, e.g.,
Unicorp Fin. Corp. v First Union Real Estate Equity & Mortgage
Investments, 515 F. Supp. 249, 262-63 (S.D. Ohio 1981) ("Any harm which
befalls [plaintiff] by virtue of the election can be remedied after a
full trial on the merits and careful deliberations are had."); Plant
Indus., Inc. v. Bregman, 490 F. Supp. 265, 271 (S.D.N.Y. 1980) ("The
Court possesses the power, if necessary, to void the election, order
resolicitation and otherwise "unscramble" this kind of transaction.")
(denying preliminary injunction in an election proxy contest)
(footnotes and citations omitted); accord United Canso, 497 F. Supp. at
115 ("Courts are understandably reluctant to interfere with an on-going
proxy solicitation absent the clearest showing of irreparable harm.")
(citation omitted).
</FN>
CERTIFICATE OF SERVICE
----------------------
I hereby certify that a copy of the foregoing was served by messenger
upon Frances Floriano Goins, Squire, Sanders & Dempsey L.L.P., 4900 Key
Tower, 127 Public Square, Cleveland, Ohio 44114-1304, attorneys for
Defendant, this 7th day of April, 1998.
/s/ Michael J. Garvin
-----------------------------------
One of the Attorneys for Plaintiffs
