UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 21)
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)
February 25, 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).
SCHEDULE 13D
CUSIP No. 337400105 Page 2 of 5 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
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 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
This Amendment No. 21 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 February 25, 1998, counsel for the Reporting Persons filed a
Response to the Company's Motion to Dismiss Counts I, II, III, IV & V of
the Reporting Person's Counterclaim in the Court of Common Pleas for
Cuyahoga County, Ohio ("Court of Common Pleas"). A copy of such Response is
attached as Exhibit 41 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
41. Response to the Company's Motion to Dismiss Counts I, II, III, IV
& V of the Reporting Person's Counterclaim filed in the Court of Common
Pleas by counsel for the Reporting Persons on February 25, 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.
February 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
EXHIBIT 41
COURT OF COMMON PLEAS
CUYAHOGA COUNTY, OHIO
FIRST UNION REAL ESTATE EQUITY ) CASE NO. 347063
AND MORTGAGE INVESTMENTS, )
) JUDGE McGINTY
Plaintiff, )
) DEFENDANTS' RESPONSE TO
v. ) PLAINTIFF'S MOTION TO DISMISS
) COUNTS I, II, III, IV & V OF
GOTHAM PARTNERS, L.P., et al., ) GOTHAM'S COUNTERCLAIM
) -----------------------------
Defendants. )
INTRODUCTION
------------
First Union Real Estate Equity And Mortgage Investment's
("First Union") Motion To Dismiss Counts I, II, III, IV, and V
("Motion to Dismiss") of Gotham L.P. I and Gotham L.P. II's
(together, "Gotham") Amended Answer and Counterclaim
("Counterclaim") demonstrates why this Court should stay this
action in favor of the related action pending in federal court.
As First Union's Motion to Dismiss demonstrates, this Court lacks
jurisdiction over Counts I, II, and III of the Counterclaim.
Therefore, it cannot dispose of all the issues and should stay
the case.
To the extent First Union seeks dismissal of Counts IV and V
of Gotham's Counterclaim, First Union's Motion to Dismiss is
utterly without merit. First Union mischaracterizes Count IV by
asserting that the claim is based solely on First Union's
bringing this action. In addition, First Union distorts the
language of its own Declaration of Trust in a desperate, but
vain, attempt to demonstrate that Gotham lacks voting rights.
Similarly, First Union mischaracterizes Count V as a derivative
claim when it is actually a direct claim. Accordingly, First
Union's Motion to Dismiss should be denied as to Counts IV and V.
FACTS
-----
Gotham is the largest shareholder of First Union, owning
approximately 9.0% of First Union's shares. Counterclaim P.P.
69-70. First Union, whose shares are publicly traded on the New
York Stock Exchange, does business as a real estate investment
trust ("REIT"). Id. at P. 68. REITs are byproducts of the Real
Estate Investment Trust Act of 1960, which amended the Internal
Revenue Code 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.
First Union was an attractive investment to the Gotham
Partnerships in part because it is one of only a few REITs in the
United States known to have what is called a "paired-share"
structure. Counterclaim at P. 74. The purpose of the
paired-share structure is to allow the shareholders to
participate in the economic benefits from the ownership and the
operations of certain real-estate-intensive operating businesses
(such as hotels, gaming, golf, health care, etc.). Id.
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. Id. In 1984,
Congress added a provision to the Internal Revenue Code barring
the further adoption by REITs of this valuable paired-share
structure, but grandfathering those paired-share REITs already in
existence. Id. Therefore, First Union's paired-share structure,
in the Gotham Partnerships' opinion, gives it a significant
competitive advantage over other REITs.
In view of its multi-million dollar investment in First
Union stock, Gotham commenced efforts in mid-1997 to meet with
First Union's management to express concerns about First Union's
relatively poor financial performance in comparison to that of
other paired-share REITs. Counterclaim at P.P. 77-80. When First
Union's management rebuffed all efforts by Gotham to discuss
their concerns about First Union's poor performance, Gotham
determined that the only way it could have its concerns fairly
addressed would be to mount a proxy contest over the strategic
direction of First Union. Gotham proposed electing three of
Gotham's nominees to replace incumbent trustees, expanding the
Board of Trustees by adding six new positions, and electing
Gotham's nominees to these positions. Counterclaim at P. 85.
Simply put, Gotham believes that First Union is poorly managed,
and wants to petition its fellow shareholders to put in place a
management team that is capable of capitalizing on First Union's
highly favorable paired-share structure.
First Union's entrenched management has engaged in a series
of acts in violation of its own Declaration of Trust and the
proxy rules contained in Section 14(a) of the Securities Exchange
Act of 1934 and the related SEC Proxy Rules, 17 C.F.R. ss. 240.14a
(collectively, the "34 Act"), in an effort to derail Gotham from
mounting a proxy contest in connection with First Union's
upcoming annual meeting, which is scheduled for April 14, 1998.
Among its unlawful efforts to deprive Gotham of its rights under
the Declaration of Trust, First Union has harassed Gotham and its
limited partners by repeatedly submitting to them redundant and
irrelevant requests for highly sensitive information, premising
its claimed right to such information on unfair, unreasonable,
and illegal interpretations of its Declaration of Trust and
By-Laws. Counterclaim at P.P. 81-84. Contrary to First Union's
allegations, Gotham has complied with all reasonable requests for
information, has turned over all information which it is required
to turn over, and is in full compliance with First Union's
Declaration of Trust and By-Laws. Id. at P.P. 82, 86 & 122; see
also id. at P. 66 (seeking a declaration that Gotham is in full
compliance with the Declaration of Trust and By-Laws).
Moreover, First Union's requests are not in any way related
to preserving its status as a REIT under federal law. Gotham's
alleged failure to turn over the names of its limited partners in
no way threatens First Union's status as a REIT. In any case,
Gotham has offered to turn over this information to First Union
if First Union will agree to certain confidentiality conditions;
First Union has refused to accept it.
First Union has also engaged in a concerted campaign to
attack Gotham's proposals through press releases. Id. at P. 87.
In addition, it advised Gotham that its proposal and nominees
failed to meet the qualifications and requirements set forth in
the Declaration of Trust and By-Laws. Id. at P. 88. However, it
failed to explain how the Declaration and By-Laws were violated.
Id.
This action, which First Union filed on January 16, 1998, is
part and parcel of First Union's illegal efforts to thwart the
Gotham's rights under the Declaration of Trust and federal proxy
law. Id. at P. 90. First Union seeks in this action to apply
its By-Laws in a discriminatory manner that would strip Gotham's
multi-million dollar investment in First Union of its value by
working a forfeiture of Gotham's voting and stockholder rights
and right to dividends. Id.
Gotham removed this action to federal court on diversity
grounds. In fact, First Union is a business trust with
citizenship in many states, not realizing that any limited
partners of its limited partners which themselves were limited
partnerships, had citizenship in Ohio. When Gotham discovered
that it had such "second-tier" limited partners, it disclosed
that fact, but believed that it did not preclude diversity
jurisdiction. Judge Aldrich ruled otherwise and remanded the
case for lack of complete diversity. While the case was pending
in federal court, Gotham filed its Counterclaim, stating claims
for relief under federal and state law, including claims under
the '34 Act over which the federal court has exclusive
jurisdiction.
Contrary to First Union's suggestion, Gotham has not refused
to voluntarily dismiss Counts I, II, and III, which state claims
under the '34 Act. After Judge Aldrich remanded this action,
counsel for First Union contacted counsel for Gotham to see if
Gotham would voluntarily dismiss these counts. Gotham's counsel
responded that it would get back to First Union on this matter
after consulting with Gotham. Before Gotham's counsel could do
so, however, First Union filed this Motion to Dismiss. In any
case, such a voluntary dismissal is unnecessary because this
Court completely lacks jurisdiction over these claims.
LAW & ARGUMENT
--------------
I. PRECISELY BECAUSE THIS COURT LACKS JURISDICTION OVER
GOTHAM'S FEDERAL CLAIMS, THIS COURT SHOULD STAY THIS ACTION.
-----------------------------------------------------------
Counts I, II, and III of Gotham's Counterclaim state claims
under the '34 Act. As First Union correctly observes, the
federal courts have exclusive jurisdiction over these claims. 15
U.S.C. ss. 78aa . Gotham does not dispute that this Court lacks
subject-matter jurisdiction over these claims. (FN1)
[FN]
1 The fact that the federal court has exclusive jurisdiction
over these claims does not preclude this Court from
considering Gotham's defenses based on the '34 Act. See
Weiner v. Shearson, Hammill & Co., Inc., 521 F.2d 817, 822
(9th Cir. 1975) (attached as Exhibit A). First Union has not
moved to strike any of Gotham's affirmative defenses under
the '34 Act.
</FN>
In fact, it is precisely because this Court lacks
jurisdiction over these claims that this Court should stay this
action. As Gotham demonstrated in its Motion to Stay, under Ohio
law a court which cannot dispose of all the issues in a case
should stay the action in favor of an action in a court which can
dispose of all the issues. State ex rel. Zellner v. Board of
Education of City of Cincinnati (1973), 34 Ohio St.2d 199, 297
N.E.2d 528. As First Union has so astutely pointed out, it is
the federal court which has jurisdiction to dispose of all the
claims in this case. In addition, the federal court has greater
familiarity with these types of issues. Therefore, this Court
should stay this action in favor of the federal action.
II. FIRST UNION'S MOTION TO DISMISS COUNTS IV & V MUST FAIL
BECAUSE IT DOES NOT ACCEPT GOTHAM'S ALLEGATIONS AS TRUE, AND
INSTEAD TRIES TO ARGUE THE FACTS OF THE CASE.
------------------------------------------------------------
In ruling on a motion to dismiss, the court must accept all
the allegation in the complaint as true. Greeley v. Miami Valley
Maint. Constr. (1990), 49 Ohio St.3d 228, 229, 551 N.E.2d 981,
982 (citation omitted). In addition, the motion can be granted
only if it appears beyond doubt from the complaint that the
non-moving party can prove no set of facts entitling it to
recover. Id. at 230, 551 N.E.2d at 982-83 (quotation omitted).
Despite this, First Union insists on cluttering the record with
its dubious challenges to Gotham's factual allegations. For
example, First Union incorrectly asserts that Gotham is in breach
of its obligations under the Declaration of Trust and the
By-Laws. Not only is this incorrect as a matter of fact, it is
contrary to Gotham's allegations that it is in full compliance.
Counterclaim at P.P. 66 & 86. In ruling on this motion, this Court
must disregard First Union's assertions, and accept Gotham's
allegations as true.
III. COUNT IV STATES AN ACTIONABLE CLAIM FOR BREACH OF THE
DECLARATION OF TRUST.
------------------------------------------------------------
A. COUNT IV IS NOT BASED SOLELY ON THIS LITIGATION.
Contrary to First Union's suggestion, Count IV is not based
"solely" on First Union's commencement of this action. Rather, as
the Counterclaim clearly states, "First Union has initiated
litigation and engaged in other tactics through which it seeks to
strip [Gotham's] shares of their voting rights." Counterclaim P.
113 (emphasis added). For example, First Union harassed Gotham
by sending unreasonable requests for information. Id. at P.P. 81 &
83. In addition, it has attacked Gotham's proposals in press
releases and other statements. Id. at P. 87. Finally, First
Union informed Gotham that its proposal and nominees failed to
comply with the Declaration of Trust and By-Laws, without giving
any basis for such a conclusion. Id. at P. 88. It is these and
similar actions, including the filing of this litigation, which
form the basis for Count IV of the Counterclaim.
B. FIRST UNION'S ACTIONS VIOLATE THE DECLARATION OF TRUST.
As Gotham alleges in the Counterclaim, First Union's conduct
in seeking to strip Gotham of its rights to vote, submit
proposals and nominations at shareholder meetings, and solicit
proxies violates the Declaration of Trust. Counterclaim at P.P.
64-66 & Counts IV & VI. Section 5.1 of the Declaration of Trust
provides that beneficiaries of record, such as Gotham, "shall be
entitled to vote or to receive dividends or otherwise to exercise
or enjoy the rights of Beneficiaries." Similarly, Section 7.5
provides that beneficiaries of record "shall be entitled to vote."
Amazingly, First Union claims that the Declaration of Trust
does not entitle Gotham to vote. First Union relies exclusively
on the first sentence of Section 7.5, which provides that "[a]t
any meeting of the Beneficiaries, any holder of shares entitled
to vote thereat may vote in person or by proxy." Standing alone,
that might not create such a right. However, the very next
sentence of Section 7.5 provides that "[o]nly Beneficiaries of
Record shall be entitled to vote." (Emphasis added.) First
Union completely ignores this language, which expressly gives
beneficiaries of record a right to vote. (FN2)
[FN]
2 The great irony here is that First Union has the gall to
accuse Gotham of misstating the Declaration of Trust, when
it is First Union which has taken the language of the
Declaration out of context. Did First Union expect that
Gotham and this Court would not read Section 7.5 of the
Declaration of Trust?
</FN>
Gotham has alleged that it is entitled to vote, make
proposals and nominations, and solicit proxies. See Counterclaim
at P. 66. This Court must accept this allegation as true. In any
case, it is indisputable that Gotham is a beneficiary of record.
As discussed above, Section 5.1 provides that beneficiaries of
record are entitled to vote and receive dividends. Therefore,
Gotham is a beneficiary of record and is entitled to vote, make
proposals, and solicit proxies under Sections 5.1 and 7.5. As a
result, First Union's actions in attempting to deprive Gotham of
these rights violate Sections 5.1 and 7.5.
In summary, First Union's actions, including the filing of
this lawsuit, are attempts to strip Gotham of its rights to vote,
submit proposals, and solicit proxies. These rights are
guaranteed to Gotham by Sections 5.1 and 7.5 of the Declaration
of Trust. Therefore, First Union's actions violate Sections 5.1
and 7.5, and Gotham has stated an actionable claim for breach of
the Declaration of Trust.
C. COUNT IV IS SIMILAR TO COUNT VI, WHICH FIRST UNION DOES NOT
SEEK TO DISMISS.
Count IV of the Counterclaim states claims very similar to
those in Count VI of the Counterclaim. In Count IV, Gotham
alleges that First Union violated the Declaration of Trust by
attempting to strip Gotham of its voting rights. Counterclaim at
P.P. 113-14. In Count VI, Gotham seeks a declaration that, inter
alia, it is entitled to vote, solicit proxies, and make
proposals. Id. at P.P. 121-23. Thus, although these counts seeks
different relief, they are based on the same set of operative
facts.
First Union apparently concedes that Count VI states a valid
cause of action, because it does not seek to dismiss that claim.
However, Counts IV and VI are based on the same course of
conduct, i.e., they both allege that First Union is wrongfully
attempting to strip Gotham of its rights. If Count VI states a
claim, then Count IV states a claim, and Count IV should not be
dismissed.
IV. COUNT V ALLEGES DIRECT INJURY TO GOTHAM AND IS NOT A
DERIVATIVE CLAIM.
------------------------------------------------------------
Contrary to First Union's assertions, Count V of the
Counterclaim pleads a direct breach of fiduciary duty claim and
direct injury to Gotham. It is well-settled that the general
principle limiting shareholders to derivative actions has no
application when a shareholder is injured in a way that is
"separate and distinct" from an injury to the business entity in
question. Crosby v. Beam, 47 Ohio St.3d 105, 107, 548 N.E.2d
217, 219 (1989); Medina v. Perumeti, No. 66732 1994 WL 716539 at
*2 (Ohio Ct. App. 1994) (["W]hen a shareholder claims that he has
sustained injuries which are not in common with other
shareholders, he may bring an individual action rather than a
derivative action") (attached as Exhibit B). In determining
whether Gotham's complaint states a derivative or a direct claim,
the Court must examine the nature of the injury alleged and give
broad construction to the pleading. Crosby, 47 Ohio St.3d at 107.
Among Gotham's allegations are that First Union has:
. "harassed [Gotham] by sending an unreasonable written
request for highly confidential information about the
makeup of [Gotham]," Counterclaim at P. 81;
. "made further unreasonable information requests," id.
at P. 83;
. did not make similar requests for information "to
other entities similar in nature," id. at P. 84;
. "[i]n response to [Gotham's] proposal and nominees,
launched a concerted campaign to solicit shareholders
by issuing press releases attacking the proposal," id.
at P. 87;
. "initiated litigation and engaged in other tactics
through which it seeks to strip [Gotham's] shares of
their voting rights," id. at P. 113;
. "authoriz[ed] litigation against [Gotham] aimed at
prohibiting a shareholder vote on [Gotham's] proposal,"
id. at P. 118(b); and
. "attack[ed] [Gotham's] nominations and proposal
through unlawful proxy solicitations and through a
baseless notice of deficiency," id. at P. 118 (a).
As can be seen, the gravamen of Gotham's breach of fiduciary
duty claim clearly is that Gotham is suffering distinct and
direct injury at the hands of a discriminatory entrenchment
scheme by First Union's management and Trustees. The cases cited
by First Union do not compel a different result here. For
example, in Grand Council of Ohio v. Owens (1993), 86 Ohio App.3d
215, 620 N.E.2d 234, relied upon heavily by First Union, the
court held that a claim was derivative because the injury was
suffered by all shareholders equally. Id. at 221, 620 N.E.2d at
238. This analysis is inapplicable here, where Gotham has pled
particularized injury. The other cases cited by First Union also
involved equal injury to all shareholders. See Russell v. United
Missionary Baptist Church 1994), 92 Ohio App.3d 736, 637 N.E.2d
82 (election violated constitution); Abrahamson v. Waddell
(1992), 63 Ohio Misc.2d 270, 271, 624 N.E.2d, 1118, 1119 (injury
suffered by all shareholders). In contrast, in Palmer v. Fox
Software, 107 F.3d 415 (6th Cir.), cert. denied, 118 S. Ct. 162
(1997), the Sixth Circuit in fact construed one of the counts of
the complaint there "broadly" to allege a claim of separate
injury to plaintiff, even though on its face the count, which
alleged attorney malpractice, "claims no injury to [plaintiff]
separate and distinct from that to the corporation." The claims
found to be derivative as pled in Palmer were allegations of
misappropriation of corporate opportunity - quite distinct from
the breach of fiduciary duty claim Gotham has pled.
In short, the claims found to be derivative in these cases
are a far cry from Gotham's well-pled claim of
entrenchment-driven, discriminatory breaches of fiduciary duty.
Indeed, the core of Count V is that First Union has singled
Gotham out for harassing treatment and withholding of the right
to even submit a proxy on any one of its more than 2 million
shares. Consequently, Gotham's breach of fiduciary duty claim
should be considered a direct claim, and First Union's Motion to
Dismiss should be denied.
Finally, First Union claims that it does not owe Gotham any
fiduciary duties. First Union conveniently ignores Thompson v.
Central Ohio Cellular, Inc. (1994), 93 Ohio App.3d 530, 540, 639
N.E.2d 462, 468 (Nugent, J.), which provides that "[i]t is
axiomatic that corporations . . . occupy a fiduciary relationship
with corporate shareholders." First Union's argument is without
merit, and its Motion to Dismiss should be denied.
CONCLUSION
----------
First Union has aptly demonstrated what Gotham has argued
all along: this case belongs in the federal court. The federal
court has jurisdiction over all the claims in this case and can
dispose of all the issues. Accordingly, this Court should stay
this action pending resolution of the federal action.
In addition, for all the foregoing reasons, this Court
should deny First Union's Motion to Dismiss Counts IV and V of
Gotham's Counterclaim.
Alternatively, Gotham respectfully requests leave to submit
a Second Amended Answer and Counterclaim and a motion to amend
should the Court conclude otherwise. See Ohio Rule of Civil
Procedure 15(a) (leave to amend "shall be freely given when
justice so requires"); Peterson v. Teodosio (1973), 34 Ohio St.2d
161, 297 N.E.2d 113, paragraph 6 of the syllabus ("[i]t is an
abuse of discretion for a court to deny a motion, timely filed,
seeking leave to file an amended complaint, where it is possible
that [the party] may state a claim upon which relief may be
granted and no reason otherwise justifying denial of the motion
is disclosed").
Respectfully submitted,
OF COUNSEL:
/s/ David C. Weiner
-------------------------
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 Defendants
OF COUNSEL:
Alexander R. Sussman
John C. Sullivan
FRIED, FRANK, HARRIS, SHRIVER
& JACOBSON
25th Floor
One New York Plaza
New York, New York 10004-1980
(212) 859-8000
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 plaintiff, this 25th day of February,
1998.
/s/ Thomas A. Cunniff
------------------------------------
One of the Attorneys for Defendants
