SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
SCHEDULE 14D-1
Tender Offer Statement Pursuant to Section 14(d)(1)
of the Securities Exchange Act of 1934
(AMENDMENT No. 1)
_______________________
GROWTH HOTEL INVESTORS,
a California Limited Partnership
(Name of Subject Company)
DEVON ASSOCIATES
CAYUGA ASSOCIATES L.P.
FLEETWOOD CORP.
(Bidders)
LIMITED PARTNERSHIP ASSIGNEE UNITS
(Title of Class
of Securities)
NONE
(CUSIP Number of Class
of Securities)
_______________________
Michael L. Ashner
Devon Associates Edward Mattner
Cayuga Associates L.P. Fleetwood Corp.
100 Jericho Quadrangle 114 West 47th Street
Suite 214 19th Floor
Jericho, New York 11735-2717 New York, New York 10036
(516) 822-0022 (212) 921-3340
Copies to:
Mark I. Fisher G. David Brinton
Rosenman & Colin LLP Rogers & Wells
575 Madison Avenue 200 Park Avenue
New York, New York 10022-2585 New York, New York 10166
(212) 940-8877 (212) 878-8276
(Name, Address and Telephone Number of
Person Authorized to Receive Notices and
Communications on Behalf of Bidders)
1. Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
Devon Associates
Cayuga Associates L.P.
Fleetwood Corp.
2. Check the Appropriate Box if a Member of a Group
(See Instructions)
(a) [ ]
(b) [ ]
3. SEC Use Only
4. Sources of Funds (See Instructions)
WC; OO
5. Check Box if Disclosure of Legal Proceedings is
Required Pursuant to Items 2(e) of 2(f)
[ ]
6. Citizenship or Place of Organization
New York (for Devon Associates)
Delaware (for Cayuga Associates L.P.
and Fleetwood Corp.)
7. Aggregate Amount Beneficially Owned by Each Reporting
Person
1 Unit (for Devon Associates)
8. Check Box if the Aggregate Amount in Row (7) Excludes
Certain Shares (See Instructions)
[ ]
9. Percent of Class Represented by Amount in Row (7)
Less than 1%
10. Type of Reporting Person (See Instructions)
PN (for Cayuga Associates L.P. and Devon Associates)
CO (for Fleetwood Corp.)
AMENDMENT No. 1 TO SCHEDULE 14D-1
This Amendment No. 1 amends the Tender Offer Statement on
Schedule 14D-1 filed with the Commission of February 15, 1996 (the
"Schedule 14D-1") by Devon Associates, a New York general
partnership (the "Purchaser"), relating to the tender offer of
the Purchaser to purchase up to 15,000 of the outstanding limited
partnership assignee units ("Units") of Growth Hotel Investors, a
California limited partnership (the "Partnership"), at a purchase
price of $705 per Unit, net to the seller in cash, upon the terms
set forth in the Offer to Purchase dated February 15, 1996 and the
related Letter of Transmittal (which collectively constitute the
"Offer") to (i) add Cayuga Associates L.P., the managing general
partner of the Purchaser, and Fleetwood Corp., a general partner
of the Purchaser, as additional bidders and (ii) to include the
information set forth below. Terms not otherwise defined herein
shall have the meaning ascribed to them in the Schedule 14D-1 and
the Offer to Purchase.
Item 10. Additional Information.
Item 10(e) is hereby amended to add the following:
(1) On February 21, 1996, William Wallace, Mildred Wallace,
Edith G. Martin, Paul Allemang and Gwen Allemang, who are
purportedly holders of limited partnership assignee units of the
Partnership or Growth Hotel Investors II ("GHI II"), commenced an
action (the "New York Action") in the Supreme Court of the State
of New York, County of New York, against Devon Associates,
Montgomery Realty Company-85, Cayuga Capital Corp., Insignia
Financial Group, Inc. and Fleetwood Corp. The action has also
been brought against the Partnership and GHI II as nominal
defendants. The complaint alleges, among other things, that the
Offer constitutes (a) a breach of the fiduciary duty owed by the
defendants (other than Fleetwood Corp) to the limited partners of
the Partnership, (b) a breach by the defendants (other than
Fleetwood Corp.) of the provisions of the Partnership Agreement of
the Partnership and (c) a breach by the defendants (other than
Fleetwood Corp.) of fiduciary duties owed to the Partnership and a
usurpation of Partnership opportunities. The complaint also
alleges that Fleetwood Corp. aided and abetted the defendants'
breaches of their fiduciary duties and violations of the
Partnership Agreement. The action, which has been brought both as
a class action on behalf of holders of Units, as well as a
derivative action on behalf of the Partnership, seeks unspecified
monetary damages and injunctive relief preventing the consummation
of the Offer and requiring defendants to discharge their fiduciary
duties to the Partnership and the members of the purported class
by, among other things, ordering the appointment of an independent
committee to act for the Partnership, the retention of independent
financial advisers and consideration of alternative transactions
and bidders. Devon Associates, Cayuga Associates L.P. and
Fleetwood Corp. believe that the New York Action is without merit
and intend to vigorously defend the action. A copy of the
complaint in the New York Action is attached hereto as Exhibit
(z)(i) and is incorporated herein by reference.
(2) On February 28, 1996, R&S Asset Partners and Jessie B.
Small, who are purportedly holders of limited partnership assignee
units in the Partnership or GHI II, commenced an action (the
"California Action") in the Superior Court of the State of
California for the County of Los Angeles against all of the
defendants in the New York Action, including the nominal
defendants, as well as Carl C. Icahn, Michael L. Ashner, Arthur N.
Queler, IFGP Corp., National Property Investors, Inc., NPI Equity
Investments II, Inc., Fox Realty Investors, Portfolio Realty
Associates, L.P., Emmet J. Cashin, Jr., Jarold A. Evans, W.
Patrick McDowell and Apollo Real Estate Advisors, L.P.
(collectively, the "California Defendants"). The complaint
alleges, among other things, that (a) the California Defendants
have breached, or aided and abetted a breach of, fiduciary duties
owed to the Partnership and its limited partners, (b) the
California Defendants have made negligent misrepresentations and
engaged in fraudulent activities in connection with the Offer and
(c) the California Defendants have caused the general partner of
the Partnership to breach provisions of the Partnership Agreement
of the Partnership. The action, which has been brought both as a
class action on behalf of holders of Units, as well as a
derivative action on behalf of the Partnership, seeks unspecified
monetary damages and injunctive relief preventing the consummation
of the Offer and requiring the California Defendants to discharge
their fiduciary duties to the Partnership and the members of the
purported class by, among other things, ordering the appointment
of an independent committee to act for the Partnership, the
retention of independent advisers and consideration of alternative
transactions and bidders. Devon Associates, Cayuga Associates
L.P. and Fleetwood Corp. believe that the California Action is
without merit and intend to vigorously defend the action. A copy
of the complaint in the California Action is attached hereto as
Exhibit (z)(ii) and is incorporated herein by reference.
Plaintiffs and defendants in the New York Action and the
California Action have agreed to an expedited discovery schedule.
In addition, such defendants also agreed to cause the Offer to be
extended by 10 days and, accordingly, the Offer has been extended
and will now expire at 12:00 midnight, New York Time, on March 25,
1996, unless extended.
Item 11. Material to be Filed as Exhibits.
Item 11 is hereby amended by adding the following, which are
attached as exhibits:
(a)(4) Press Release issued March 8, 1996.
(z)(i) Complaint as filed on February 21, 1996 with
the Supreme Court of the State of New York,
County of New York.
(z)(ii) Complaint as filed on February 28, 1996 with
the Superior Court of the State of
California, County of Los Angeles.
Signatures
After due inquiry and to the best of my knowledge and belief,
I certify that the information set forth in this statement is
true, complete and correct.
Dated: March 8, 1996
DEVON ASSOCIATES
By: Cayuga Associates L.P.
By: Cayuga Capital Corp.,
its General Partner
By: /s/ Michael L. Ashner
Name: Michael L. Ashner
Title: President
By: Fleetwood Corp.
By: /s/ Edward E. Mattner
Name: Edward E. Mattner
Title: President
CAYUGA ASSOCIATES L.P.
By: Cayuga Capital Corp.,
its General Partner
By: /s/ Michael L. Ashner
Name: Michael L. Ashner
Title: President
FLEETWOOD CORP.
By: /s/ Edward E. Mattner
Name: Edward E. Mattner
Title: President
Exhibit Index
Sequentially
Exhibit No. Description Numbered Page
(a)(4) Press Release issued March 8, 1996. 12
(z)(i) Complaint as filed on February 21, 1996 13
with the Supreme Court of the State of
New York, County of New York.
(z)(ii) Complaint as filed on February 28, 1996 45
with the Superior Court of the State of
California, County of Los Angeles.
Exhibit (a)(4)
March 8, 1996
Jericho, New York
FOR IMMEDIATE RELEASE ....
Devon Associates has announced that its offers to purchase
outstanding Limited Partnership Assignee Units of each of the
partnerships set forth below have each been extended and are now
each scheduled to expire at 12:00 midnight, New York City time,
on March 25, 1996. The number of Units deposited as of March 7,
1996 pursuant to the offers is set forth below.
Number of Units
Name of Deposited as of
Partnership March 7, 1996
Growth Hotel Investors, 6,957
a California Limited Partnership
Growth Hotel Investors II,
a California Limited Partnership 8,935
For additional information, contact Sherri Herman of The
Herman Group Inc., the Information Agent for the offers, at 214-
999-9393.
Exhibit (z)(i)
SUPREME COURT FOR THE STATE OF NEW YORK
COUNTY OF NEW YORK
- ---------------------------------------x
WILLIAM WALLACE, MILDRED WALLACE,
EDITH G. MARTIN, PAUL ALLEMANG and
GWEN ALLEMANG, on behalf of
themselves and all others similarly
situated, and derivatively on behalf
GROWTH HOTEL INVESTORS, a California
Limited Partnership, and GROWTH HOTEL
INVESTORS II, a California Limited
Partnership,
Plaintiffs, Index No. ____
v.
DEVON ASSOCIATES, MONTGOMERY
REALTY-85, GHI ASSOCIATES, CAYUGA
ASSOCIATES L.P., CAYUGA CAPITAL
CORP., INSIGNIA FINANCIAL GROUP,
INC., L.P., and FLEETWOOD CORP.,
Defendants,
and
GROWTH HOTEL INVESTORS, a California
Limited Partnership, and GROWTH HOTEL
INVESTORS II, a California Limited
Partnership,
Nominal Defendants.
- ---------------------------------------x
CLASS AND VERIFIED DERIVATIVE
ACTION COMPLAINT AND JURY DEMAND
Plaintiffs, by their attorneys, as and for their class and
derivative complaint, allege upon personal knowledge as to
themselves and their own acts and upon information and belief as
to all other matters, based upon, inter alia, the investigation
of counsel, which included a review of public documents filed
with the United States Securities and Exchange Commission (the
"SEC"), among other things, as follows:
1. Plaintiffs William and Mildred Wallace are
holders of assignee units of Growth Hotel Investors, a California
Limited Partnership ("Growth Hotel"). Edith G. Martin and Paul
and Gwen Allemang are investors in Growth Hotel Investors II, a
California Limited Partnership ("Growth Hotel II", collectively,
the "Partnerships"). They bring this action on behalf of all
holders of assignee units or limited partnership interests
(hereinafter the "limited partners") in Growth Hotel, and Growth
Hotel II, respectively, as of January 8, 1996, to whom an
inadequate and self-interested tender offer is being made by
affiliates of the general partner, Montgomery Realty-85
("Montgomery"). They also bring this action derivatively on
behalf of and in the right of Growth Hotel and Growth Hotel II
for the sale of control without obtaining a control premium and
the usurpation of the Partnerships' opportunities.
JURISDICTION AND VENUE
2. Jurisdiction over the subject matter is proper
in this Court because this action arises under state common law
and state statutes.
3. Personal jurisdiction over the defendants is
proper in this judicial district because the defendants are
either resident here, or are engaging and have engaged in
substantial activity and business in this judicial district under
C.P.L.R. Section 302.
THE PARTIES
4. Plaintiffs William and Mildred Wallace are and at all
relevant times hereto have been holders of limited partnership
interests in Growth Hotel.
5. Plaintiffs Edith G. Martin and Paul and Gwen Allemang
are and at all relevant times hereto have been holders of limited
partnership interests in Growth Hotel II.
6. Defendant Devon Associates ("Devon" or the
"Purchaser") is a New York general limited partnership which was
formed and is controlled by affiliates of the General Partners,
as explained below. By Offers to Purchase dated February 15,
1996 ("Offers to Purchase"), Devon has offered to purchase: (a)
up to 15,000 outstanding limited partnership units of Growth
Hotel or 41% of the outstanding units for $705 per share for a
total offering price of $10,575,000 (assuming all shares tender)
to unitholders as of January 8, 1996; and (b) up to 21,000
limited partnership units of Growth Hotel II or 35.6% for $750
per share for a total offering price of $15,750,000 (assuming all
shares tender)(together, the "Tender Offers") to unitholders as
of January 8, 1996. Both Tender Offers presently expire on March
14, 1996.
7. Defendant Montgomery, a limited partnership organized
in California, is the general partner of Growth Hotel, and one of
two general partners of Growth Hotel II. Devon was formed and
is controlled by affiliates of Montgomery, making the tender
offer self-interested. On December 6, 1993, a wholly-owned
subsidiary of National Property Investors, Inc. ("NPI"), an
entity which was controlled by, inter alios, Michael Aschner
("Aschner"), assumed management and obtained control of
Montgomery. On October 12, 1994, NPI sold one-third of its stock
to an affiliate of Apollo Real Estate Advisors, L.P. ("Apollo").
On August 17, 1995, the stockholders of NPI entered into an
agreement to sell all the issued and outstanding of stock of NPI
to an affiliate of defendant Insignia Financial Group, Inc.
("Insignia"), essentially giving Insignia control over
Montgomery. Devon is a joint venture between defendant Cayuga
Associates L.P. ("Cayuga Associates") (an entity indirectly
controlled by Apollo/Insignia/Aschner) and Fleetwood Corp.
("Fleetwood") (an entity controlled by Carl C. Icahn ("Icahn")).
8. Defendant Cayuga Associates is a Delaware limited
partnership whose general partner is defendant Cayuga Capital
Corporation, which is controlled by Apollo (through W. Edward
Scheetz ("Scheetz")), Insignia and Aschner. Cayuga Associates is
one of the joint venturers controlling the Purchaser, Devon.
9. Defendant Cayuga Capital Corporation ("Cayuga
Capital"), is a Delaware corporation, and is the general partner
of Cayuga Associates. Cayuga Capital, in turn, is controlled by
Aschner, Scheetz, a limited partner of Apollo and a managing
director of its real estate investment fund, and an undisclosed
subsidiary of Insignia. Aschner is the former president,
director and co-chairman of NPI, whose predecessor Fox Capital
Corporation originally underwrote and sold Growth Hotel and
Growth Hotel II, and is a director and president of Cayuga.
Until recently, NPI controlled Montgomery, and then sold a one-
third interest in Montgomery to Apollo (who subsequently sold
their interest to Insignia). Apollo is a New York based real
estate investment and management limited partnership, controlled
in part, by Scheetz.
10. Defendant Insignia, a Delaware corporation with a
place of business located at One Insignia Place, Greenville,
South Carolina, and a place of business in New York City, is a
real estate service organization which specializes in the
management of residential and other properties.
11. Fleetwood is a Delaware corporation formed by Icahn
to joint venture Devon with Cayuga Associates to make the Tender
Offers, which maintains a principal place of business in New York
City.
12. GHI Associates is one of the general partners of
Growth Hotel II.
13 The nominal defendants, Growth Hotel and
Growth Hotel II, are California limited partnerships maintaining
a place of business at One Insignia Financial Plaza, Greenville,
South Carolina--the same address as Insignia, and in Insignia's
office in New York City.
CLASS ALLEGATIONS
14 The action is brought pursuant to C.P.L.R.
Section 901 et seq., and is brought on behalf of the named plaintiffs,
individually and as a class action on behalf of all persons who
held assignee units or limited partnership interests in Growth
Hotel and Growth Hotel II as of January 8, 1996, and who will be
damaged by the Tender Offers.
15 Counts I, II and IV of this action are
properly brought as a class action under C.P.L.R. Section 901, for the
following reasons:
(a) The Class consists of thousands of persons and
is so numerous that joinder of all members is impracticable;
(b) There are questions of law and/or fact common
to the Class which predominate over any questions affecting the
individual members, including:
(i) whether the defendants, aided and abetted
by Fleetwood, breached their fiduciary duties to the Class by,
inter alia, making tender offers without first shopping the
Partnerships or considering other alternatives which would have
maximized value to the limited partners, such as liquidating the
properties underlying the Partnerships;
(ii) whether the defendants, aided and abetted by
Fleetwood, breached their fiduciary duties to the Class by, inter
alia, making the Tender Offers at an inadequate price;
(iii) whether the Offers to Purchase and any other
documents disseminated in relation to the Tender Offers were
false and misleading, and thus, in breach of the defendants'
(except Fleetwood's) fiduciary duties to the Class;
(iv) whether those Class members who do not tender
will be damaged as a consequence of the voting control which will
be concentrated in the Purchaser; and
(v) whether the Class members will be
irreparably harmed as a consequence of the Tender Offers.
16. The claims asserted by the plaintiffs are
typical of the claims of members of the Class;
17. The plaintiffs will fairly and adequately
protect the interests of the Class and have retained counsel
experienced in class actions and complex litigation;
18. A class action is superior to other available
methods for the fair and efficient adjudication of this
controversy for at least the following reasons:
(a) given the size of the individual Class
member's claims, few Class members could afford to seek legal
redress individually for the wrongs committed against them, and
absent Class members have no interest in controlling the
prosection of the individual actions;
(b) other available means of adjudicating the
claims of plaintiffs and members of the Class, such as thousands
of individual actions brought separately and pursued
independently in state or federal court across the country, are
impracticable and inefficient;
(c) this action will cause an orderly and
expeditious administration of the Class claims, economies of
time, effort, and expense, and will be foster uniformity of
decisions;
(d) without a class action, the Class members will
continue to suffer damages and defendants' violations of law will
proceed without remedy, while defendants continue to retain the
proceeds of their wrongful acts;
(e) management of this action as a class action
poses no unusual difficulties that would impede its management by
the Court;
(f) the claims brought by plaintiffs and members
of the Class are not now, nor have they been the subject of
another class action to the best of plaintiffs' knowledge.
DERIVATIVE ALLEGATIONS
19. Counts III and IV are brought derivatively
on behalf of and in the right of Growth Hotel and Growth Hotel
II, pursuant to B.C.L. Section 626.
20. Plaintiffs William and Mildred Wallace have
been and remain holders of units in Growth Hotel during the
wrongdoing, and plaintiffs Edith G. Martin and Paul and Gwen
Allemang have been and remain holders of units in Growth Hotel II
during the wrongdoing.
21 A formal written demand upon the General
Partners, the entities with authority to bring this action on
behalf of the Partnerships, would have been futile and is
unnecessary because the General Partners themselves are liable
for the wrongdoing in breaching their fiduciary duties to the
Partnerships. Given the fact that there is a substantial
likelihood they may be held liable, they would in essence be
suing themselves.
22. Moreover, the General Partners are controlled
or have been controlled by entities making the Tender Offer
- -- Insignia, Apollo (through Scheetz) and NPI (through Aschner).
Thus, entities who control and who previously controlled and had
inside information respecting the Partnerships and their true
values, stand to obtain a direct pecuniary benefit from the
wrongdoing alleged herein. Consequently, it is unlikely that
these defendants would enable the General Partners to adequately
respond to a demand and/or commence suit.
23. In fact, in the Schedule 14D-1's, filed by
the Partnerships, the General Partners admit that they are beset
by disabling conflicts of interests with respect to the
Partnerships or the limited partners, and thus may not be able to
act in the best interests of the Partnerships or the limited
partners.
BACKGROUND
24 25,000 units of Growth Hotel were offered
pursuant to a prospectus dated August 14, 1985, at $1,000 per
unit. Fox Capital, a predecessor to NPI, underwrote and made the
offering and raised $36,932,000. 75,000 units of Growth Hotel
Investors II were offered for sale at a $1,000 per unit by
prospectus dated October 10, 1986 by Fox Capital and raised
$58,982,000 (the "Offerings").
25. Both Growth Hotel prospecti indicate that the
Partnerships were formed for the purpose of investing in limited
service hotels, anticipated to be franchises of Hampton Inn
Hotel, a division of Holiday Inn.
26 They further indicate that their investment
objectives were: (a) to preserve and protect the Partnerships'
invested capital, (b) provide capital gains through potential
appreciation; (c) provide cash distributions from operations; (d)
obtain federal income tax deductions so that during the early
years of operations portions of cash distributions would be
treated as a return of capital for tax purposes, and therefore,
not represent taxable income to the Unitholders, and (e) build up
equity through the reduction of mortgage loans.
27. The Partnerships were to pay quarterly
distributions to the unitholders. The prospecti also indicated
that most of the properties would be sold in five to ten years of
the Offerings (1990 to 1996) -- which has expired.
28. In the last several years the hotel
properties have been experiencing a dramatic rise in value as a
consequence of above average increases in both rates and
occupancies. As a result, generally there has been great demand
for hotel properties by investors, including those properties
owned by the Partnerships, and a concomitant increase in the
value of those properties.
29. This dramatic growth in value of the
Partnerships' properties, however, has not been apparent to the
limited partners in the Partnerships because the General Partner
did not increase the dividends in the same proportion that cash
flow in the Partnerships has been increasing. Instead, the
General Partners stockpiled cash, and used the cash to pay down
mortgage debt in anticipation of this Tender Offer.
30. For instance, in 1994 alone, the increase in
investors' equity due to the increase in cash and the decrease in
mortgage debt (not even taking into account the appreciation in
the value of the properties which has been significant), is
approximately $60.00 per unit for Growth Hotel II alone.
31 Such increases are not taken into account in
the inadequate tender offer prices being offered.
32. Moreover, the price of the Partnerships'
units on the informal secondary market for such units has been
artificially depressed. Given the General Partners' failure to
shop or liquidate the underlying hotel properties, particularly
given the favorable climate for doing so, and the only marginal
increase in distributions (due to, inter alia, the General
Partners' stockpiling of cash), the price of the units on the
secondary market have been artificially depressed.
33. Prior to January 1995, Metric Realty
("Metric"), an unaffiliated third party, performed management
services for the Partnerships. Apparently based upon its
knowledge of the Partnerships and the increase in cash flows and
values of the properties, in the first quarter of 1994, Metric
expressed interest in purchasing all of the Partnerships'
properties at prices greater than those being offered in the
Tender Offers.
34. In an effort to eliminate any potential
bidder for these properties, and in anticipation of the self-
dealing and inadequate Tender Offers, in early 1995, while the
General Partner was controlled by NPI and Apollo, the General
Partner essentially bought off Metric, by prepaying Metric $2.250
million to amend its management contract (eliminating payments to
Metric for the sale and/or refinancings of the properties, which
is the likely course which the defendants will undertake once
they obtain control of the Partnerships).
35. In an effort to take advantage of this
depression of the price of the units which they caused, the
general illiquidity of the units, the increasing value of the
underlying hotel properties, and their effective pay off of at
least one potential, knowledgeable bidder, on February 16, 1996,
the defendants commenced the Tender Offers.
36. In doing so, the General Partners breached their
fiduciary duties to the Class in that they:
(a) failed to shop either the Partnerships or the
underlying properties prior to making the inadequate Tender
Offers, despite their admission that at least one potential
purchaser, Metric, the former management agency of the
Partnerships, was contemplating making an offer for the units at
prices higher than those being offered in the Tender Offers;
(b) in fact, took steps to pay off Metric to
prevent it from making a tender offer or purchase the
Partnerships;
(c) adequately account for the increase in cash
flow of the properties and the decrease in mortgage debt;
(d) adequately account for the appreciation in
value of the underlying properties and the current excellent
market for hotel properties;
(e) failed to consider alternatives which might
have yielded greater value for the limited partners, including
the sale and/or liquidation of some or all of the underlying
hotel properties, which they are required to at this point in
time under the relevant partnership agreements (the "Partnership
Agreements");
(f) failed to hire an independent advisor to advise
and negotiate with the General Partners in order to obtain a
reasonable price for the limited partners; and
(g) are making the Tender Offers pursuant to false
and misleading Offers to Purchase.
37 The Offers to Purchase are false and misleading in
that they misstate or fail to state the following material
information:
(a) they misleadingly state that the hotel industry
is risky and volatile, when, in fact, the market for hotels is
extremely good and is thus a good time for the Partnerships to
liquidate their holdings;
(b) fail to emphasize that the Partnerships have
been experiencing and will continue to experience increasing
rates, occupancies, cash flows and revenues;
(c) fail to disclose that the price being offered
in the Tender Offers do not reflect the increase in cash flow of
the Partnerships, particularly because the General Partner has
used the increasing cash flow to stockpile cash and pay down
mortgage debt, rather than meaningfully increase distributions to
the limited partners, in anticipation of the Tender Offers;
(d) fail to disclose that the General Partner
essentially paid off the at least one potential bidder for the
properties, Metric, who, over two years ago was willing to pay
more for the Partnership's properties than is being offered in
the Tender Offers (although the value of the limited partners'
interests has only increased since that time);
(e) misleadingly emphasizes the lack of liquidity
of the units and the low prices being offered in the secondary
market for them (and falsely touts that the tender offer prices
are higher than the secondary market prices), while failing to
disclose that it is the defendants' actions which are
artificially depressing the price of the units;
(f) fails to disclose essential financial
information which would enable a reasonable investor to calculate
the actual profits and financial benefits to be gained by
defendants from their acquisition of effective voting control of
the Partnerships, without paying any control premium; and
(g) fails to adequately and fully disclose the
defendants' intentions with respect to the Partnerships and the
underlying properties.
38 The Tender Offers also constitute a sale of control
of the Partnerships for which the limited partners and the
Partnerships are not being offered any premium.
39 Other than affiliates of the General Partners, who
own approximately 2-3% of the units in each of the Partnerships,
the Partnerships are held by individual unitholders with small
holdings.
40. By way of the Tender Offer, the Purchaser and
present and former control persons of the General Partner are
attempting to purchase control of the Partnerships. If the
Tender Offers succeed, the Purchaser and those control persons
will become the majority unitholders and will be able to
influence and control all unitholder votes, including those
respecting removal of the General Partner, and those respecting
the amendment of the applicable Partnership Agreements.
41. Because of these control characteristics, the
Tender Offers constitute a change of control, giving rise to a
duty by the General Partner to implement measures and take all
steps reasonable to ensure that the limited partners receive the
best value for this change of control and maximum value for their
units.
FIDUCIARY OBLIGATIONS OF DEFENDANTS
42. By reason of their positions as either former or
current control persons of Montgomery, who possess material
inside information concerning the Partnerships, their increasing
cash flow and the appreciation in value of the hotel properties
underlying the Partnerships, and their direct or indirect
interests in the Purchaser, the defendants (except for Fleetwood
who has not had an interest in Montgomery) owed the Partnerships
and the limited partners fiduciary obligations of fidelity,
trust, loyalty, due care and candor, and were and are required to
use their utmost ability to control the Partnerships in a fair,
just and equitable manner, and to act in furtherance of the best
interests of the Partnerships and their unitholders so as to
benefit all unitholders proportionately and not in furtherance of
their own personal interests or to benefit themselves and/or
their affiliates at the expense of the Partnerships and the
limited partners. Each defendant (except Fleetwood) also owed
the Partnerships the fiduciary duty to exercise due care,
loyalty, and diligence in the management and administration of
the affairs of the Partnerships and in the use and preservation
of the Partnerships' properties. Fleetwood owed the Partnerships
and the limited partners the duty not to aid and abet the
remaining defendants breaches of their fiduciary duties.
43. To discharge their fiduciary duties, the defendants
were required to exercise reasonable and prudent supervision over
the management, policies, practices, controls, and financial
affairs of the Partnerships. By virtue of this obligation of
ordinary and reasonable care and diligence, the defendants
(except Fleetwood) were required, among other things:
(a) to manage, conduct, supervise, and direct the
business affairs of the Partnerships in accordance with state and
federal laws, and the Partnership Agreements, among other things;
(b) to exercise reasonable control and supervision
over the officers and employees of the Partnerships; and
(c) to ensure the prudence and soundness of
policies and practices undertaken or proposed to be undertaken by
the Partnerships, including the refinancing or sale of various
owned by the Partnerships.
44. With respect to the Partnerships themselves, the
General Partner and its control persons owe the Partnerships
fiduciary duties including:
(a) offering the Partnerships business
opportunities duly belonging to the Partnerships, rather than
usurping such opportunities for themselves;
(b) obtaining a control premium upon the sale of
control of the Partnerships.
COUNT I
(Against all defendants except Fleetwood for breach of
fiduciary duty to the Class)
45. Plaintiffs repeat and reallege each and every
allegation set forth above as if fully stated herein.
46. At all times relevant herein, the defendants (except
Fleetwood), as General Partners and/or persons who were or are
affiliated with the General Partners, and through that
affiliation were able to and have obtained material inside
information respecting the Partnerships, the increase in the
Partnerships' cash flow, and the appreciation of the properties
underlying the Partnerships, owed fiduciary duties of due care,
good faith, fair dealing, loyalty, honesty and candor in their
management of the Partnerships and to the limited partners. They
further owed a duty not to place their own interests above those
of either the Partnerships or the limited partners.
47. Each of the defendants, except Fleetwood, by virtue
of their affiliation with and/or continuing interest in the
General Partner, owes the fiduciary duties specified above to the
limited partners, Class members herein.
48. By virtue of the Tender Offers and their interests
in both the Purchaser and the General Partner, and their acts
leading to and the terms of the Tender Offers, including the
dissemination of false and misleading tender offer documents,
these defendants breached their fiduciary duties to the limited
partners of the Partnerships.
49. As fiduciaries, these defendants were and are
obligated to establish and follow procedures to provide assurance
to themselves and to the limited partners of the provisions that
the Tender Offers represent the best value available to the
limited partners for their units.
50. Had the terms and conditions of the Tender Offers
been negotiated as arms' length, had competing offers been
solicited, or had other alternatives to the Tender Offers such as
liquidation, been considered, the limited partners of the
Partnerships would have been offered a higher value for their
units on more favorable terms. In structuring and making the
Tender Offers, the defendants breached and continue to breach
their fiduciary duties to the limited partners, including
disseminating false and misleading tender offer documents.
51. As a direct and proximate result of the breaches of
fiduciary duties set forth herein, the Partnerships, plaintiffs
and members of the Class have been and continue to be irreparably
damaged.
COUNT II
(Against all defendants, except Fleetwood,
for breach of the Partnership Agreements)
52. Plaintiffs repeat and reallege each and every
allegation set forth above as if fully stated herein.
53. The Partnerships are governed by similar Partnership
Agreements. These Partnership Agreements state that the primary
purpose of the Partnerships were to invest in, acquire, manage
and ultimately to sell income producing property. The
Partnership Agreements also contain provisions designed to
protect the limited partners of the Partnerships from self-
dealing and overreaching by the General Partners.
54. The Partnership Agreements further prohibit the co-
mingling of Partnership funds, amending the Partnership
Agreements without the informed consent of a majority of the
limited partners, entering into the sale of all or substantially
all of the assets of the Partnerships, unless the transaction is
approved by the informed consent of the limited partners, among
other provisions.
55. The Tender Offers constitute a breach of the
Partnership Agreements, by which plaintiffs and the Class have
been and continue to be irreparably damaged.
COUNT III
(Against all the defendants, except Fleetwood,
on behalf of the Partnerships)
56. Plaintiffs repeat and reallege the allegations set
forth above as if fully state herein.
57. The defendants, except Fleetwood, owe fiduciary
duties to the Partnerships, including obtaining a premium on the
sale of control of the Partnerships and allowing the Partnerships
their opportunities.
58. By way of the Tender Offers, which are essentially
change of control transactions, the defendants have breached and
continue to breach their duties to the Partnerships and have
effectively usurped the Partnerships' opportunities.
59. As a consequence, the Partnerships have been and
continue to be irreparably harmed.
COUNT IV
(On behalf of the Class and the Partnerships,
against Fleetwood)
60. Plaintiffs repeat and reallege each and every
allegation set forth above as if fully stated herein.
61. Fleetwood substantially assisted in and thus aided
and abetted the remaining defendants' breaches of their fiduciary
duties and violations of the Partnership Agreements.
62 By virtue of Fleetwood's substantial participation
in the Tender Offers and the remaining defendants' breaches and
violations, the Class and the Partnerships have been and continue
to be irreparably damaged.
WHEREFORE, plaintiffs, on behalf of themselves, a Class
similarly situated and the Partnerships, pray for judgment as
follows:
(a) That the Court adjudge Counts I, II as and IV
properly maintained as a class action;
(b) That the Court adjudge Counts III and IV as
properly maintained as a derivative action;
(c) That the Court award the Class and the
Partnerships compensatory damages;
(d) That the Court preliminarily and permanently
enjoin defendants from consummating the Tender Offers;
(e) That the Court order the defendants to
discharge their fiduciary duties to the Partnerships and to the
Class, by among other things:
(i) engaging independent persons to act on a
fully informed basis in the best interests of the limited
partners and the Partnerships;
(ii) to shop the Partnerships and/or the
underlying properties, and to cooperate with all persons, other
than defendants or their affiliates, with anyone having a bona
fide interest in any transaction which would maximize the value
of investments in the Partnerships and the premium due and owing
to the Partnerships;
(iii) take all steps which would create an active
auction for the units or the Partnerships' properties;
(iv) adequately ensure that no conflicts of
interest exist between defendants' own interests and their
fiduciary obligations or, if such conflicts exist, to ensure that
all such conflicts are resolved in favor of the limited partners
and the Partnerships;
(f) Ordering defendants to create an independent
committee to consider other alternatives to the Tender Offers,
including the orderly liquidation of the properties underlying
the Partnerships;
(g) Awarding plaintiffs, the members of the Class,
and the Partnerships their prejudgment interest, and the costs
and expenses of this litigation, including reasonable attorneys'
fees and expenses, and other costs and disbursements; and
(h) Such further and other relief as to this Court may
seem just and reasonable.
Respectfully submitted,
GOODKIND LABATON RUDOFF &
SUCHAROW, LLP
Lynda J. Grant, Esq.
100 Park Avenue
New York, NY 10017
212/907-0700
HANZMAN CRIDEN KORGE HERTZBERG
& CHAYKIN, P.A.
Michael Criden, Esq.
First Union Financial Center
South Biscayne Boulevard
Miami, FL 33131
305/579-1222
Attorneys for Plaintiffs
Exhibit z(ii)
Lionel Z. Glancy, Esq.
LAW OFFICES OF LIONEL Z. GLANCY
1299 Ocean Avenue, Suite 323
Santa Monica, California 90401
(310) 319-3277
Andrew D. Friedman, Esq.
WECHSLER HARWOOD HALEBIAN
& FEFFER LLP
805 Third Avenue
New York, New York 10022
(212) 935-7400
COUNSEL FOR PLAINTIFFS
[Additional Counsel on Signature Page]
SUPERIOR COURT OF THE STATE OF CALIFORNIA
FOR THE COUNTY OF LOS ANGELES
R & S ASSET PARTNERS, a Florida General
Partnership, and JESSIE B. SMALL, on
their own behalves, on behalf of all
others similarly situated, and
derivatively on behalf of the Nominal
Defendants,
Plaintiffs,
v.
DEVON ASSOCIATES, CAYUGA ASSOCIATES,
L.P., CAYUGA CAPITAL CORP., FLEETWOOD
CORP., CARL C. ICAHN, MICHAEL L. ASHNER,
MARTIN LIFTON, ARTHUR N. QUELER,
INSIGNIA FINANCIAL GROUP, INC., IFGP,
CORP., NATIONAL PROPERTIES INVESTORS,
INC., NPI EQUITY INVESTMENTS II, INC.,
FOX REALTY INVESTORS, PORTFOLIO REALTY
ASSOCIATES, L.P., EMMET J. CASHIN, JR.,
JAROLD A. EVANS, W. PATRICK MCDOWELL,
APOLLO REAL ESTATE ADVISORS, L.P., and
MONTGOMERY REALTY COMPANY-85,
Defendants,
- and -
GROWTH HOTEL INVESTORS, a California
Limited Partnership and GROWTH HOTEL
INVESTORS II, a California Limited
Partnership,
Nominal Defendants.
CLASS AND DERIVATIVE ACTION
COMPLAINT AND JURY DEMAND
Plaintiffs, R & S Asset Partners and Jesse B. Small
("Plaintiffs"), by their attorneys, hereby allege, upon personal
knowledge as to themselves and their own acts and upon
information and belief as to all other matters, based upon, inter
alia, the investigation conducted by counsel, which included a
review of, among other things, public documents filed with the
United States Securities and Exchange Commission ("SEC") by
various defendants and the two limited partnerships that are
named herein as nominal defendants, news articles, press
releases, financial data and other published materials, and
documents produced by defendants, as follows:
SUMMARY OF CLAIMS
1. This is a partnership/securities class and
derivative action brought by limited partners of the two limited
partnerships organized under the laws of California and named as
Nominal Defendants, Growth Hotel Investors ("GHI") and Growth
Hotel Investors II ("GHI II") (collectively, "the Partnerships"),
against the general partner of the Partnerships, defendant
Montgomery Realty Company-85 (the "General Partner"), and various
individuals and entities that either owned or own, controlled or
control and/or have access to the General Partner ("Defendants").
The claims asserted herein -- for breach of fiduciary duty,
aiding and abetting a breach of fiduciary duty, negligent
misrepresentation and fraud -- are brought derivatively on behalf
of each of the Partnerships, and individually on behalf of the
Plaintiffs and a class consisting of all persons and entities who
are holders of limited partnership units ("Units") of the
Partnerships (the "Class", "Limited Partners" or "Unitholders").
2. Plaintiffs seek monetary damages and
equitable relief, including an order: (1) prohibiting the
Defendants from consummating two highly similar tender offers
commenced by defendant Devon Associates ("Devon" or the
"Acquiring Entity") -- a partnership formed, controlled and owned
by the Defendants and their affiliates -- on February 15, 1996
(collectively referred to as the "Tender Offer") and pursuant to
which the Defendants are seeking to fraudulently induce members
of the Class, through false and misleading statements and
omissions, to sell approximately 40% of the outstanding Units of
the Partnerships to Devon at highly inadequate prices that the
defendants know do not reflect the true value of the Units,
and/or (2) requiring the Defendants to issue disclosures to
correct false and misleading statements and omissions of material
facts in documents prepared, filed with the SEC, issued and/or
disseminated to the Class by Defendants (through Devon) in
connection with the Tender Offer -- including the two tender
offer statements filed on Schedule 14D-1 and exhibits thereto,
including a document entitled Offer to Purchase, for each
Partnership (collectively, the "14D-1's" or "Offering
Documents"); and/or (3) preventing Defendants from voting the
Units acquired pursuant to the Tender Offer, in any matter
affecting the treatment of the General Partner of the assets of
the Partnership.
3. As set forth below, the Defendants are
members or affiliates of five inter-related groups of investors,
all of whom have joined together in an common plan and scheme by
which they have, through control and access to the General
Partner, inter alia, purposefully mismanaged the Partnerships to
further their own interests, misappropriated partnership assets,
including non public information, and usurped a lucrative
business opportunity of the Partnerships. The five investor
groups consist of (1) the three former principals of defendant
National Properties Investors, Inc. ("NPI"), the indirect parent
of the General Partner -- Michael L. Ashner ("Ashner"), Arthur M.
Queller ("Queller") and Martin Lifton ("Lifton") (collectively,
the "Former NPI Principals") -- NPI is the sole shareholder of
defendant NPI Equity Investments II, Inc. ("NPI Equity"), which
in turn, is the managing co-general partner of defendant Fox
Realty Investors ("Fox"), a California general partnership that
is the general partner of the General Partner of the
Partnerships; (2) Insignia Financial Group, Inc. and its
subsidiary IFGP Corp. ("IFGP") (collectively, "Insignia"), which
became the parent of the General Partner in January 1996
following the closing of a series of contracts entered into on
August 17, 1995 by which Insignia and certain other Defendants
agreed to purchase NPI and various affiliates from the Former NPI
Principals and other Defendants for over $116 million (as
described below, the "Transaction" or "NPI-Insignia
Transaction"); (3) Carl C. Icahn ("Icahn") who through various
entities that he controls, joined Insignia in the Transaction as
the co-purchaser of various affiliates and assets of NPI; (4)
Apollo Real Estate Advisors, L.P., and entities it controlled or
controls ("Apollo"), which currently owns a substantial equity
interest in Insignia and previously owned one-third of the
outstanding common stock of NPI, which was sold to Insignia as
part of the Transaction; and (5) the three former principals of
Fox and its affiliates -- Emmet J. Cashin, Jr., Jarold A. Evans
and W. Patrick McDowell and their affiliated entities
(collectively the "Fox Investors") -- who sold their controlling
interests in Fox and the General Partner to NPI and the Former
NPI Principals in 1993 (as described below, the "NPI-Fox
Transaction") and pursuant to various agreements related to the
NPI-Fox Transaction, formed and became limited partners of
Portfolio Realty Associates, L.P., a California limited
partnership, which became the non-managing co-general partner of
Fox, with NPI Equity. All five groups of Defendants are now
participants in Devon and its coercive Tender Offer.
4. All Defendants have participated in a
plan and scheme that exploits their past and present managerial
control of the Partnerships in order to further their own
financial interests at the expense of the Limited Partners and
the Partnerships. The Defendants' Plan has three primary goals:
(1) to receive excessive annual fees and income from the
Partnerships and related joint ventures controlled by the
Partnerships while laying the groundwork to create favorable
conditions for the successful completion of a tender offer for
Units at prices below the true value of the Units; (2) to acquire
enough equity in the Partnerships to entrench the Defendants in
their positions of control over the Partnerships in order to
assure that the General Partner is not removed, to prolong the
lives of the Partnerships and/or take any other actions they may
desire that would benefit their own interests, and (3) to obtain
such control over the Partnerships by defrauding Limited Partners
into selling their Units to the Defendants at rock bottom prices
that are well below the true value of the Units.
5. As described below, in pursuit of their
common plan and scheme, all Defendants have knowingly engaged
and/or participated in, and continue to engage and/or participate
in, inter alia, the following wrongful acts, all of which lack
valid business purposes, were and are contrary to the
Partnerships' stated investment goals (as set forth in the
Prospectuses and the Partnership Agreements defined below), and
which have diminished and continue to waste the Partnerships'
assets:
(a) in furtherance of the first part of the Scheme, the
Defendants have taken and/or caused the Partnerships to take,
inter alia, the following wrongful acts: (1) the accumulation of
substantial excess cash resulting from the General Partners'
refusal to make proper cash distributions to Unitholders (GHI is
currently holding cash balances of over $5 million and GHI II has
over $12 million in undistributed cash); (2) the failure to
properly explore transactions that would maximize the value of
the Limited Partners' investments, such as the sale of some or
all of the interests in limited service hotel properties that are
owned by the Partnerships, which were supposed to be sold between
5-10 years from their acquisition in 1985-87 -- indeed,
Defendants disclosed in the Offering Documents, that in 1994, the
General Partner received, but failed to pursue, a bona fide offer
from a purportedly unaffiliated entity, Metric Realty, Inc.
("Metric"), to purchase all of the Partnerships' hotel properties
for an aggregate price that would have provided Unitholders with
$860 per Unit of GHI and $878 per Unit of GHI II (the "Metric
Offer"), prices that are $155 and $128 per Unit higher that the
low ball prices of $705 and $750 per Unit respectively, than the
Defendants are offering to the Class to acquire their Units of
GHI and GHI II; and (3) the entrance into a wasteful and highly
suspicious agreement by which, shortly after the Metric Offer,
the Partnerships were caused to pay $2.2 million to Metric
Management Inc. ("MMI"), an affiliate of Metric, purportedly for
MMI's agreement to revise the terms and payments to be made
pursuant to an undisclosed asset management agreement that the
Partnerships had purportedly entered with MMI. Such improper
actions have rendered the Class' Units highly illiquid and caused
an artificial depression in the prices available to class members
who went liquidity for the sale of their Units on the limited
resale secondary market;
(b) in furtherance of the second part of the Plan, the
defendants have sought to acquire effective voting control of the
Partnerships through the Tender Offer for the purchase of
approximately 40% of the outstanding Units of each of the
Partnerships and, in conjunction therewith, (i) Defendants
misappropriated non-public information concerning the operations
of the Partnerships, the true value of Units and the General
Partners' future plans for the Partnerships, which include the
refinancing of tens of millions of dollars of debt that has
matured, and will mature, in 1996 and 1997, which will result in
the Partnerships' receipt of substantial proceeds that are
required to be distributed to Unitholders; (ii) Defendants formed
a partnership, defendant Devon, and used such misappropriated
information to obtain a multi-million loan from PaineWebber Real
Estaet Securities, Inc. ("PaineWebber") after it had conducted
"due diligence" (the "Loan"), to finance the Defendants' highly
coercive Tender Offer secured by the Units to be acquired and the
expected distributions to be received from the Units Devon
acquires in the Tender Offer -- a business opportunity that, at
the very least, should have first been offered to the
Partnerships (i.e., the Partnerships should have been offered the
opportunity to use excess cash and/or proceeds from a loan to
acquire Units of all Limited Partners desiring liquidity, at a
fair price, thus benefitting the entire Class) rather than
offered to the affiliates of the General Partner and their
business associates Icahn, Apollo, the Former NPI Principals and
the Fox Investors; and (iii) Defendants actually created new
conflicts of interest between the General Partner and the Class
because, inter alia, the shift in control of the Partnerships
caused by the Tender Offer may be deemed a breach, and cause the
termination of the Partnerships' licensing agreements with
Hampton Inns Hotels, cause various mortgages to be accelerated
and because the terms of the Loan will require Devon to make pre-
payments on the loan principal in amounts per Unit that are
received by the Partnerships from sales or refinancings and thus,
are technically available for distribution regardless of whether
such proceeds are actually distributed to Unitholders by the
General Partner (i.e., creating an incentive for the General
Partner to immediately distribute such funds even if it may be
best to reserve or use such funds for other purposes);
(c) in pursuit of the third part of the Plan, to
defraud Unitholders into tendering and selling Units to the
Defendants at rock bottom prices that are well below their true
value, the Defendants knowingly prepared, issued and disseminated
Offering Documents that contain misrepresentations and omissions
of material information concerning, inter alia, (i) the alleged
advantages of tendering Units pursuant to the Tender Offer; (ii)
the true liquidation values of Units of the respective
Partnerships; (iii) the true financial condition of the
respective Partnerships; (iv) the General Partners' intentions
and plans with respect to the Partnerships, including their plans
to refinance over $40 million of the Partnerships' mortgage debt
in 1996 alone and the proceeds expected to be received and made
available for distribution to Unitholders; and (v) the
circumstances surrounding the Metric Offer, whether it was
pursued and why it was not completed, and the circumstances of
the $2.2 million payment by the Partnerships to MMI.
6. Among the misrepresentations and omissions in
the Offering Documents are:
(1) the outright false statement that Defendants
and the General Partner do not have any plans or intentions with
respect to "a liquidation of the Partnerships, a sale of assets
or refinancing of any of the Partnerships' properties," when in
truth, Defendants actually know that the majority of the
Partnerships' mortgage debt has and/or is scheduled to mature
this year and will, in fact, be refinanced in 1996 and from which
the Partnerships are expected to receive substantial proceeds
that, pursuant to the Partnership Agreements, must be made
available for distribution to Unitholders -- i.e., Defendants are
failing to tell Class Members that they will be entitled to
receive substantial cash distributions this year and next year if
they simply hold their Units instead of selling to Defendants;
(2) misrepresentations regarding the true estimate of
current liquidation value of the Units by failing to include
amounts that the General Partner would be required to pay to
Class Members if the Partnerships were to be liquidated this
year;
(3) false statements that principals of Devon and its
affiliates do not own beneficially Units of the Partnerships when
they own close to, or more than 5% of GHI II;
(4) misrepresentations regarding the illiquidity of
Units and omitting to state the true reasons why Unitholders are
not able to receive higher values for their Units through sales
on the secondary market; and
(5) the omission of any of the circumstances
surrounding the Metric Offer to purchase all assets of the
Partnerships, whether the General Partner pursued and explored
the Metric Offer or why it did not, and whether the $2.2 million
payment to MMI was in any way connected to Metric's abandonment
of the offer to buy the Partnerships' properties; and
(6) misrepresentations concerning Metric, such as the
statement that Metric is an "unaffiliated third party", and
omissions of information concerning past or present connections,
ties and/or affiliations that various partners of Devon (i.e.,
the Fox Investors) may have had or currently have with Metric.
7. As a result of defendants' wrongful conduct
as alleged herein, Plaintiffs and the members of the Class have
incurred substantial damages resulting from, inter alia, the
failure to receive distributions to which they are entitled and
the diminution in the value of the Units of the Partnerships
caused by the Defendants' refusal to take actions to maximize the
value of their investments, and are currently threatened with
further injury resulting from either the sale of their Units to
Defendants for grossly inadequate consideration in reliance upon
false and misleading statements and omissions of material
information; or the failure to sell their Units and thus becoming
a minority partner in Partnerships controlled by and managed by
persons with interests that conflict with the interests of the
minority partners; and the Partnerships have incurred damages
resulting from the defendants' misappropriation of the
Partnerships' assets, usurpation of a Partnership opportunity and
the continued waste of assets to pay for actions designed to
entrench the Defendants.
8. In addition to the damages caused by
defendants' prior wrongful acts, plaintiffs seek the following
equitable remedies, (1) an order (a) directing Defendants to
issue corrective disclosures, (b) enjoining Defendants from
consummating the Tender Offer or, in the alternative, from
exercising the voting rights attached to any Units purchased in
the Tender Offer; and (c) compelling Defendants to comply with
their contractual and fiduciary obligations by exploring all
actions that would possibly maximize the value of the
Unitholders' investments, including, the solicitation of interest
in, and removal of any artificial barriers to, the successful
offering and completion of any third party tender offers for
Units that may result in higher offer prices, the exploration of
sales of hotel properties, and/or the presentation of plans of
liquidation(s) to the Unitholders for their consideration, to be
voted upon by all Unitholders pursuant to a full and fair proxy
vote.
JURISDICTION AND VENUE
9. This action is brought on behalf of two
California limited partnerships and limited partners of such
Partnerships and asserts claims arising under the California
Unfair Business Practices Act, the California Corporate Code and
common law of the State of California. Venue is appropriate in
this Court because the Partnerships are residents of California
and the General Partner and entities controlling the General
Partner are California corporations and/or Partnerships. In
addition, Defendants are either, licensed to do business in this
State or i) operate, conduct, engage in and carry on a business
or business ventures in this State and have an office or agency
in this State; ii) committed a tortious act within this State;
iii) caused injury to persons or property within this State
arising out of acts and/or omissions by the defendants; iv) have
engaged in unfair trade practices in the State; and (v) breached
a contract entered into in this State that is governed by
California law by failing to perform acts required by the
contract that were to be performed in this State.
PARTIES
Plaintiffs
10. Plaintiffs bring this action on behalf of the
Class and derivatively on behalf of, and for the benefit of, the
Partnerships, in order to effectuate the relief requested.
a Plaintiff R & S Partners is a general
partnership organized under the laws of the State of Florida and
is the owner of Units of GHI.
b Plaintiff Jesse B. Small is a citizen of
the State of Florida and is the owner of Units of GHI II.
Nominal Defendants
11. The nominal defendants are two limited
partnerships organized under the laws of California, Growth
Hotels Limited Partnerships, ("GHI I") and Growth Hotels II
Limited Partnership ("GHI II"), with their primary offices now
located at One Insignia Financial Plaza, Greenville, South
Carolina.
12. The Partnerships were formed in 1984 by
defendant Fox Realty Investors ("Fox") following the sale of
Limited Partnership Assignee Units of the Partnerships to two
investors pursuant to virtually identical Prospectuses (the
"Prospectuses") (with variations concerning the particular
properties, etc.), each of which annexed the respective
Partnership's agreement of limited partnership (collectively, the
"Partnership Agreements") as an exhibit thereto. Approximately
36,900 Units of GHI were sold in 1985 through May 1986, raising
proceeds of approximately $36.9 million. Approximately 58,900
Units of GHI II were sold in 1985 through May 1986, raising
proceeds of approximately $58.9 million.
13. As stated in the Prospectuses and Partnership
Agreements, the two Partnerships were created for the purpose of
investing, primarily through joint ventures, in hotel properties
franchised by Hampton Inns Hotels, Inc. GHI acquired interests
in twenty three hotels, including eighteen acquired through a
joint venture with GHI II called the Growth Hotel Investors
Combined Fund No 1, a California limited partnership (the "Joint
Venture"). GHI II acquired interests in twenty four hotels,
including the 18 hotels in which the Joint Venture owned a
controlling interest. All investors were told, through virtually
identical statements contained in the Prospectuses and
Partnership Agreements, that the Partnerships' objectives were
the appreciation in the value of the Partnerships' properties,
build up of equity by reduction of the mortgage loans on the
hotel properties, the payment of cash distributions to each of
the limited partners and return of capital. In addition, all
investors were similarly told that the Partnerships intended to
sell the hotel properties "within five to ten years after their
acquisition."
Defendants
14. Defendant Montgomery Realty Company-85, the
General Partner, is a California general partnership that is the
General Partner of the Partnerships. At all relevant times, the
General Partner was and is responsible for the day-to-day and
overall management of the Partnerships, including maintaining the
books and records of the Partnerships and determining whether to
sell any of the assets owned by the Partnerships, explore
business opportunities or repurchase Units of limited partners
seeking liquidity.
15. Defendant Fox Realty Investors ("Fox") is a
California general partnership, which previously had offices in
Foster City, California but which, upon information and belief,
now maintains its offices in Greenville, South Carolina. Fox is
the managing co-general partner of the General Partner of the
Partnerships. On December 6, 1993, defendant NPI purchased Fox
and various affiliates and as a result, defendant NPI Equity
Investments II, Inc. ("NPI Equity II"), a wholly owned subsidiary
of NPI, became the managing co-general partner of Fox and as a
result, became responsible for the operation and management of
the business and affairs of the Partnerships. In connection
therewith, defendant Portfolio Realty Associates, L.P. ("PRA")
became the co-general partner of Fox.
16. Defendant Portfolio Realty Associates, L.P.,
is a California limited partnership formed by the Fox Investors
in connection with the NPI-Fox Transaction, and maintains offices
in San Mateo, California. PRA is the non managing co-partner of
Fox.
17. Defendant NPI Equity Investments II, Inc. is
a Florida corporation that is wholly owned by Defendant NPI that
now maintains offices in Greenville, South Carolina. NPI Equity
is the managing general partner of Fox.
18. Defendant National Properties Investors,
Inc., NPI, is a Delaware corporation with its principal offices
now located in Greenville, South Carolina. NPI, the sole
shareholder of NPI Equity, is a real estate investment and
property management company founded in 1984 by defendants Michael
L. Ashner and Arthur N. Queller. In 1991, defendant Martin
Lifton joined NPI as Chairman in connection with its acquisition
of the National Properties Investors portfolio. In late 1994, an
affiliate of defendant Apollo, AP-NPI II, LP, acquired a 33 1/3%
interest in NPI. In January 1996, NPI was sold to defendant
IGFP, Corp. a wholly owned subsidiary of Insignia. Upon the
closing of the Transaction, the officers and directors of NPI and
NPI Equity resigned and new officers and directors were appointed
by Insignia.
19. Defendant Insignia is a Delaware corporation
with its principal offices located in Greenville, South Carolina.
Insignia is the direct or indirect corporate parent of the
General Partner and IFGP (and a limited partner of Devon) and
thus, controls and directs the activities and operations of the
General Partner Defendants and IFGP. Insignia is a real estate
service organization that provides property management, asset
management, investor services, partnership administration,
mortgage banking, and real estate investment banking services for
approximately 600 limited partnerships (including the
Partnerships) with approximately 300,000 limited partners.
Insignia commenced operations in December 1990 and since then has
grown to become the largest manager of residential apartment
properties in the United States, providing property and/or asset
management services for over 1,600 apartment properties. In its
Annual Reports filed with the SEC on Form 10-K, Insignia very
candidly admits that it has grown primarily by acquiring,
directly or through related entities, controlling positions in
the general partners of real estate limited partnerships,
following which it has often "caused the controlled entity to
retain the Company to provide property management and other
services for the properties."
20. Defendant Devon Associates is a newly formed,
bankruptcy remote, New York General Partnership with its
principal offices located 100 Jericho Quadrangle, Jericho, New
York. One third of the partnership interests of Devon are owned
by defendant Fleetwood Corp. ("Fleetwood"), an entity owned by
Icahn. The remaining two-thirds of the partnership interests are
owned by defendant Cayuga Associates, L.P., ("Cayuga"), an entity
owned by Ashner and the other Former NPI Principals, Apollo,
Insignia and the Fox Investors. Devon was formed for the purpose
of acquiring limited partnership Units of the Partnerships.
21. Defendant Cayuga Associates, L.P. ("Cayuga")
is a newly formed, bankruptcy remote single purpose Delaware
limited partnership with offices at 100 Jericho Quadrangle,
Jericho, New York. The general partner of Cayuga is defendant
Cayuga Capital, and the limited partnership interests are owned
as follows: 11.72% by Insignia, 24.12% by the Fox Investors,
23.785% by Apollo and 40.37 by the Former NPI Principals and a
fourth individual, Peter Braverman.
22. Defendant Cayuga Capital Corp. ("Cayuga
Capital") is a newly formed, bankruptcy remote single purpose
Delaware Corporation with offices at 100 Jericho Quadrangle,
Jericho, New York. Cayuga Capital is the general partner of
Cayuga and its stock is owned one-third by Ashner, one-third by
Apollo and one-third by Insignia.
23. Defendant Michael Ashner is a resident of 17
Butonwood Drive, Dix Hills, New York, and up until January 1996
was a director and one of the four majority stockholders of NPI.
Ashner is also the President of defendant Cayuga Capital, which
is the General Partner of Cayuga, a co-partner of Devon. Ashner
also signed the Offering Documents on behalf of Devon and owns
one-third of the stock of Cayuga Capital. Ashner as a partner in
numerous entities owned and operated by the Former NPI Principals
and Apollo. In addition, Ashner is employed by several entities
owned and/or controlled by Apollo. As a result of his various
positions in NPI and Apollo, Ashner controlled the activities and
operations of NPI and the General Partner Defendants up until
January 1996, and currently controls the activities and
operations of Devon.
24. Defendant Martin Lifton ("Lifton") is a
resident of 101 Wheatley Road, Old Westbury, New York 11568, and
was a director and one of the four majority stockholders of NPI.
Lifton owns partnership interests in Cayuga and is a partner and
owner of equity in numerous entities owned and/or controlled by
Apollo and the Former NPI Principals.
25. Defendant Arthur N. Queller ("Queller") is a
resident of 7421 Campo Florida, Boca Raton, Florida 33433, and up
until January 1996, was a director and one of the four majority
stockholders of NPI. Queller owns partnership interests in
Cayuga and is a partner and owner of equity in numerous entities
owned and/or controlled by Apollo and the former NPI principals.
26. Defendant Apollo Real Estate Advisors, L.P.,
is a Delaware limited partnership with offices at 1301 Avenue of
the Americas, New York, New York 10038. Its general partner is
Apollo Real Estate Management Inc., a Delaware Corporation which
is controlled by Leon Black. Apollo owns a large portion of the
equity of Insignia and is a partner and/or owner of equity in
numerous entities owned jointly with the Former NPI Principals.
27. Defendant Carl C. Icahn ("Icahn") is a
resident of Mount Kisco, New York and is the owner of all of the
common stock of defendant Fleetwood, the co-partner of Devon and
owner of one-third of the partnership interests in Devon.
28. Defendant Fleetwood Corporation is a newly
found, bankruptcy remote single purpose Delaware Corporation with
offices at 100 South Bedford Road, Mount Kisco, New York 10549.
Fleetwood is the co-partner of Devon and is owned by Icahn.
29. As the General Partner and its parent
corporations, affiliates or directors and officers, and as the
parties who joined together to compile the Offering Documents
sent to the Plaintiffs and the Class, all Defendants are
"insiders" as that term relates to matters herein. In addition,
all Defendants, as fiduciaries to plaintiffs, the Class and the
Partnerships, have fiduciary obligations to all investors in the
Partnerships to disclose the truth as to all material facts
concerning the Limited Partners' investments in the Partnerships.
FIDUCIARY OBLIGATIONS OF DEFENDANTS
30. By reason of their positions and because of
their ability to control the business affairs of the Partnerships
at all relevant times, the defendants all owed the Partnerships
and their Unitholders fiduciary obligations of fidelity, trust,
loyalty, and due care, and were and are required to use their
utmost ability to control the Partnerships in a fair, just and
equitable manner, and to act in furtherance of the best interests
of the Partnerships and their unitholders so as to benefit all
unitholders proportionately and not in furtherance of their own
personal interests or to benefit themselves and/or their
relations, friends or persons and entities with whom they have a
personal, financial or inter-corporate relationship, at the
expense of the Partnerships. Each defendant also owed the
Partnerships the fiduciary duty to exercise due care, loyalty and
diligence in the management and administration of the affairs of
Partnerships and in the use and preservation of their property
and assets.
31. To discharge their fiduciary duties, the
defendants were required to exercise reasonable and prudent
supervision over the management, policies, practices, controls,
and financial affairs of the Partnerships. By virtue of this
obligation of ordinary and reasonable care and diligence, the
defendants were required, among other things:
a To manage, conduct, supervise, and
direct the employees, businesses and affairs of the Partnerships
in accordance with state and federal laws, rules and regulations,
and the Partnership Agreements, Prospectuses, charters and
by-laws of the Partnerships;
b To exercise reasonable control and
supervision over the officers and employees of Partnerships;
c To ensure the prudence and soundness of
policies and practices undertaken or proposed to be undertaken by
Partnerships, including the refinancing of various properties
owned by the Partnerships and decisions whether to sell, or
explore possible sales of properties owned by the Partnerships;
d To remain informed as to how the
Partnerships were, in fact, operating and, upon receiving notice
or information of unsafe, imprudent or unsound practices, to make
a reasonable investigation in connection therewith and to take
all appropriate steps to correct that condition or practice and
recover any of the Partnerships' assets that may have been
wasted, squandered or improperly appropriated by others;
e To establish and maintain systematic and
accurate books and records of business and affairs of the
Partnerships and procedures for the reporting of the business and
affairs to the officers or directors of the Managing General
Partners and all other persons and entities with the authority to
control or oversee the affairs and operation of the Partnerships,
and to periodically investigate, or cause independent
investigation to be made of, the books and records of the
Partnerships;
f To supervise the preparation, filing
and/or dissemination of any public filings, such as filings with
the United States Securities and Exchange Commission ("SEC"),
press releases, letters and communications to unitholders,
audits, financial reports or other information or reports
required by law from the Partnerships and to examine and evaluate
any reports of examination, audits, or other financial
information concerning the condition of the Partnerships; and
g To maintain and implement an adequate
functioning system of internal financial, accounting and lending
controls and management information systems, such that the
Partnerships assets would be safeguarded, their financial
statements and other material information would be accurately
recorded and reported and the Partnerships' managers would be
given prompt notice of serious problems or divergences so that
risk to the Partnerships would be minimized.
32. All of the Defendants, because of their
positions of control and authority as operating officers and
directors, inter-related entities or overseers of the
Partnerships' management and operation, were able to and did,
directly or indirectly, control the operations and management of
the Partnerships. Pursuant to the common scheme, the defendants
participated in, inter alia, the following wrongful acts: (i)
the initial mismanagement of the Partnerships by causing them to
(a) enter into numerous related party contracts for management,
banking and insurance services with affiliates of NPI, and now
Insignia, which were and are not economical or in the best
interests of the Partnerships and which have resulted in, and
continue to cause, a gross waste of partnership assets; (b) the
refusal to consider, or take appropriate steps to properly
explore the benefits that could be derived from the possible sale
of properties owned by the Partnerships, the rejection of a bona
fide offer to purchase properties, and the failure to sell any
properties of the Partnerships despite the existence of very
favorable market conditions, solely to allow Defendants to
continue to receive annual income derived from their management
of such properties and complete their plan to acquire Units, and
voting control, of the Partnerships at a highly advantageous
price; (c) causing the Partnerships to accumulate highly
excessive cash balances by wrongfully refusing to distribute cash
in excess of necessary reserves to Unitholders in order to cause
an artificial depression in the prices for Units available on the
limited resale market for such Units so that the Defendants'
Tender Offer would appear to provide Unitholders seeking
liquidity with a significant premium over the previously
available trading price for Units of the Partnerships; and (d)
the issuance of false and misleading statements and omissions of
material facts concerning, inter alia, the Partnerships'
financial condition, the future plans of the General Partner, and
the true value of Units so that Defendants could fraudulently
induce Unitholders to tender Units pursuant to the Tender Offer
at highly unfair prices.
DERIVATIVE ALLEGATIONS
33. Plaintiffs bring this action as a derivative
action on behalf of and for the benefit of the Partnerships, to
remedy damages caused to the Partnerships by the defendants'
wrongdoing alleged herein.
34. Plaintiffs will fairly and adequately
represent the interests of the Partnerships and their Unitholders
in enforcing and prosecuting the rights of the Partnerships.
35. A formal written demand upon the General
Partner or the board of directors of the various entities that
control the General Partner, the entity with the sole authority
to bring action on behalf of the Partnerships asserting any of
the claims set forth herein against any or all of the Defendants
named herein, is, and would have been, futile under the
circumstances, and thus, was and is not required, is unnecessary,
and would be a useless act because all such persons are biased
and not disinterested in the decision whether to pursue the
claims made herein against themselves and the entities that they
either control, are employed by and/or are affiliated with. The
recently appointed officers and directors of NPI Equity, which
has authority to manage Fox, which is the managing general
partner of the General Partner of the Partnerships, also serve as
executive officers and directors of Insignia, which itself may be
found liable for the wrongful conduct alleged herein, for fraud,
negligent misrepresentation, mismanagement and gross waste of
partnership assets and breaches of fiduciary duty. In fact, the
General Partner and Insignia have conceded that a demand would be
futile in statements regarding the conflicts of interests of the
General Partner with regard to the Tender Offer, in which
Insignia is a participant, that are set forth in the Offering
Documents filed with the SEC on Schedule 14D-1.
CLASS ACTION ALLEGATIONS
36 Plaintiffs bring this action as a class
action, pursuant to Fed. R. Civ. P. 23(b)(1) and (b)(2)
(regarding the equitable relief sought) and (b)(3) (regarding
monetary damages), on behalf of a Class which consists of all
persons or entities who are current owners of Units of one or
more Partnerships. Excluded from the Class are the Defendants
named herein, their affiliates, employees, legal representatives,
agents, and members of the immediate family of each of the named
individual defendants.
37. The members of the Class are so numerous that
joinder of them is impracticable. Plaintiffs are informed and
believe, and on that basis allege, that there are over seven
thousand members of the Class.
38. This action presents questions of law and
fact common to the Class and such common questions of law and
fact predominate over questions or issues which affect individual
class members. The Offering Documents filed in connection with
the Tender Offer for each of the Partnerships were virtually
identical, as are the Prospectuses and Partnership Agreements for
the two Partnerships. The issues raised by the Plaintiffs with
respect to the Partnerships in which they have invested are
identical to those of the other limited partners of the
Partnerships.
39. Among the common questions of law and fact
with respect to the Class are the following:
a whether the Offering Documents issued by
defendants misrepresented and omitted material information;
b whether defendants have taken actions to
fraudulently induce investors to unknowingly sell Units of the
Partnerships to the Defendants at prices that are substantially
below their true value;
c whether the Defendants have breached or
aided and abetted the breach of fiduciary duties owed to the
Plaintiffs, the Class and the Partnerships, including their
duties of entire fairness, loyalty, due care and full disclosure;
d whether the General Partner has violated
its contractual obligations under the Partnership Agreements of
the Partnerships;
e whether the Defendants have violated the
California Unfair and Deceptive(?) Trade Practices Act;
f whether Plaintiffs and members of the
Class will suffer irreparable injury absent the equitable relief
requested herein; and
g whether Plaintiffs, members of the Class
and the Partnerships have suffered monetary damages as a result
of defendants' wrongful actions and the measure of such damages.
40. This action should be maintained as a class
action because prosecution of separate lawsuits by individual
members of the Class would create the risk of inconsistent
adjudications with respect to individual Class members which
would, in turn, establish incompatible standards of conduct for
defendants. The claims of plaintiffs and the Class members are
based upon the same legal theories, they seek uniform injunctive
relief, and their alleged monetary damages arise out of the same
course of conduct by the defendants. Thus, adjudications with
respect to individual Class members would, as a practical matter,
be dispositive of the interests of other Class members not
parties to those adjudications or would substantially impair or
impede their ability to protect their interests. Furthermore,
many Class members injured by defendants' conduct will not be
compensated for their injuries in the absence of a class action,
since it is too expensive for most individual Class members to
individually prosecute this litigation.
41. Plaintiffs' claims are typical of the claims
of the members of the Class and Plaintiffs have retained counsel
who are experienced in securities and complex class action and
derivative litigation.
42. A class action is superior to other available
methods for the fair and efficient adjudication of the
controversy since there is little interest for individual class
members to control this litigation separately and the prosecution
of this action as a class action will not be difficult or
unmanageable.
FACTUAL ALLEGATIONS
The Partnerships
43. The Partnerships were organized in 1984 under
the California Uniform Limited Partnership Act. Units were sold
by defendant Fox and its affiliates pursuant to two highly
similar Prospectuses. As set forth in the Prospectuses and the
Partnership Agreements, the Partnerships were created for the
purpose of investing, primarily through joint ventures, in income
producing limited service hotel properties franchised by the
Hampton Inn Hotel Division of Holiday Inns, Inc. The stated
investment objectives of the Partnerships were to provide the
Limited Partners with regular cash distributions to be paid from
the income earned from the operation of the hotels, capital gains
through appreciation, several possible income tax benefits and a
buildup of equity through the reduction of mortgage loans on the
hotels. Moreover, all of the Prospectuses and Partnership
Agreements expressly provided that the Partnerships intended to
sell most or all of the hotel properties within five to ten years
of the acquisition of such properties, (most of which were
acquired in 1985-1987) with the proceeds to be distributed to the
Unitholders and General Partner, and that thereafter, the General
Partner would liquidate the Partnerships.
The Management Of The Partnerships
44. Pursuant to the Partnership Agreements, each
of the Partnerships is managed by the General Partner. The
Limited Partners of the Partnerships have no right, power, or
authority to manage the Partnerships. There are no independent
entities that oversee the actions of the General Partner for the
benefit of the Limited Partners of the Partnerships.
45. The initial offer and sale of the Units in
the Partnerships required the approval of the blue sky
administrators of the states in which the Units were sold. The
units in each of the Partnerships were sold in most if not all of
the 50 states. In granting permission to sell the units in their
states, the blue sky administrators applied the Statement of
Policy On Real Estate Programs (the "Statement") promulgated by
the North American Securities Administrators Association, Inc.
("NASAA"), an association of the states' blue sky administrators.
The Statement requires sponsors of partnerships organized to
engage in the acquisition and ownership of real estate to include
provisions in the Partnership Agreements of the Partnerships
designed to prohibit self-dealing between partnerships and the
general partners or its affiliates, to limit the compensation
payable to the general partners and to its affiliates, and to
prevent overreaching by general partners.
46. The Partnership Agreements of the
Partnerships contain provisions designed to protect the Limited
Partners of the Partnerships from self-dealing and overreaching
by the General Partner of the Partnerships and its many
affiliates. These provisions include prohibitions against:
amending the Partnership Agreements without the consent or vote
of the holders of a majority of the issued and outstanding Units
of the Partnerships, and entering into any transaction entailing
the sale of all, or substantially all of the assets of the
Partnerships in a single transaction, unless the transaction is
approved by a majority of the holders of the issued and
outstanding Units of the Partnerships or is effected in
connection with the liquidation and winding down of the business
and operations of the Partnerships.
47. Had the Partnerships not included the
protective provisions outlined directly above in their
Partnership Agreements, the states' blue sky administrators would
not have permitted Units of the Partnerships to be sold to the
public.
48. The General Partner is a fiduciary,
accountable to the Partnerships and to the limited partners of
the Partnerships as a fiduciary. The General Partner of each of
the Partnerships acknowledged, in each of the Prospectuses that
were used to offer and sell the units of the Partnerships to the
public, that the General Partner of the Partnerships is a
fiduciary and must exercise good faith and integrity in handling
the business of the Partnerships.
The Formation, Goals and
Objectives of the Partnerships
49. The Partnerships were initially organized to
invest in hotel properties for profit and to engage in any and
all activities related or incident thereto, with the anticipation
that each acquired property would be "sold after a period of
ownership extending from approximately five to ten years" and
that the General Partner would liquidate the Partnerships after
all properties were sold. (Prospectus at p. 4).
50. The Prospectuses and Partnership Agreements
prepared by, or with the assistance of, the General Partner,
stated, among other things, that the goals, and the primary
objectives of the Partnerships were to:
(1) preserve and protect the
Partnerships' invested capital;
(2) provide capital gains
through potential appreciation in value;
(3) provide cash distributions
from operations;
(4) obtain federal income tax
deductions, so that during the early
years of operations, a portion of cash
distributions may be treated as a return
of capital for tax purposes and therefor
may not represent taxable income to
Unitholders; and
(5) build-up of equity
through the reduction of mortgage loans;
51. Each of the Prospectuses also set forth the
intent of the Partnerships to sell off its assets within five to
ten years after acquired.
52. The Prospectuses and Partnership Agreements
also set forth the General Partners' contractual and fiduciary
obligations and responsibilities with respect to the operation of
the Partnerships and the management of Partnerships' assets,
which included a duty to regularly review whether it would be in
the best interests of the limited partners to sell any or all of
the properties owned by the Partnerships.
Initial Management of the Properties by the Fox Investors
53. Following the sale of Units, the Partnerships
and the General Partner were controlled by Fox, the Fox Investors
and various related entities and/or affiliates. Fox entered into
an agreement with Metric Management, Inc., an affiliate of the
Fox Investors, to operate and manage the Partnerships.
The NPI-Fox Transaction
54. In December 6, 1993, NPI entered into a
series of agreements with the Fox Investors and various entities
owned or affiliated with the Fox Investors to purchase the
general partner interests in various partnerships, including the
Partnerships, that were owned by such Fox entities. In
connection therewith, NPI Equity became the managing partner of
Fox (and thus the managing General partner of the General
Partner) and the Fox Investors contributed their general
partnership interests to Portfolio Realty Advisors L.P. ("PRA")
in exchange for limited partner interests in PRA, which became
the non-managing partner of Fox.
55. In connection with the NPI-Fox Transaction,
on December 16, 1993, the services agreement with MMI was revised
and the General Partner then assumed responsibility for the
management and operation of the Partnerships.
56. Following the acquisition described above,
NPI caused the Partnerships and the Joint Venture to enter into
numerous contracts and transactions with various affiliates and
entities related to NPI for the provision of various management
and investment services, pursuant to which to NPI and its
affiliates received annual payments of several million dollars
from the Partnership and Joint Venture.
57. On October 12, 1994, NPI sold one-third of
its stock to an affiliate of Apollo Real Estate Advisors, L.P.
("Apollo"). In July 1995, Apollo purchased a large equity
interest in Insignia.
The NPI-Insignia Transaction
58. On August 17, 1995, the Former NPI Principals
and certain of their respective family members, and AP-NPI II,
L.P., a partnership owned, controlled and/or affiliated with
Apollo, all entered into a series of agreements with defendants
Insignia and IFGP Corporation ("IFGP"), a corporation owned by
Insignia, and several entities owned by Icahn by which all of the
issued and outstanding common stock of NPI was sold to IFGP, and
Insignia and Icahn purchased (a) all of the units of limited
partnership interest in 14 public real estate limited
partnerships held by NPI, the NPI defendants and Apollo,
including the Partnerships, and (b) all of the common stock and
the general and limited partnership interests of two affiliates
of NPI which provide real estate management services to the
Partnerships. The aggregate purchase price paid at the closing
of the Transaction in January 1996 was approximately $116,000,000
less an adjustment for payments by Insignia of amounts that had
been borrowed by certain NPI affiliates from PaineWebber Real
Estate Securities, Inc. ("PaineWebber"). In connection with the
Transaction, an affiliate of Insignia entered into a
participation agreement with PaineWebber pursuant to which it
agreed to purchase from PaineWebber a subordinated participation
in the senior financing provided by PaineWebber to such NPI
affiliates for an aggregate purchase price equal to $16,239,296.
59. Pursuant to the NPI-Insignia Transaction,
Insignia acquired managing control of the Partnerships by
acquiring NPI Equity, and thus, assumed all of the contractual
and fiduciary duties, responsibilities and obligations of the
General Partner. In January 1996, all of the officers and
directors of NPI Equity resigned and were replaced by persons
appointed by Insignia.
60. As part of the Transaction, Ashner entered into
an agreement with Insignia by which he agreed to allow Insignia
to invest in all of his future ventures by which he and Apollo
may seek to acquire equity positions in real estate limited
partnerships such as the Partnerships. Pursuant to this
arrangement, if any "jointly" owned entity acquires equity in a
real estate partnership that then enters into management
contracts with Insignia or its affiliates, Ashner will be
entitled to a "kick-back" of a portion of the fees earned on such
contracts.
Insignia's Acquisition of Managing
Control Over the General Partner
61. Pursuant to the Transaction, Insignia
acquired managing control of the Partnerships by acquiring the
corporation that serves as the managing general partner of Fox,
the partnership that controls the management of the General
Partner of the Partnerships. Thus, Insignia and IFGP assumed all
of the duties, responsibilities and obligations of General
Partner and the entities controlling the General Partner.
62. The transfer of the general partner interests
and control over the General Partner, first from the Fox
Investors to the Former NPI Principals, and then from the Former
NPI Principals to Insignia, were not conditioned upon the
approval of the Limited Partners of the Partnerships because
Montgomery Realty Company-85 and the entities controlling the
General Partner continued to exist and to retain their positions,
even though they actually were now under the control of new
entities, i.e., first NPI and now Insignia.
Defendants' Failure To Sell Partnership Properties Or
Even Explore Bona Fide Offers to Purchase the Properties
63. As of the start of 1996, the majority of the
hotel properties acquired by the Partnerships had been owned for
nine to eleven years. However, contrary to the Partnerships'
objectives and stated intentions, the General Partner has not
sought to dispose of all or most of the properties, nor has it
implemented any procedures or undertaken proper efforts to
explore whether such sales might be in the best interests of the
Limited Partners, who were stuck with highly illiquid
investments. Instead, the Defendants have delayed, and still
continue to delay, the sale of the Partnerships' acquired assets
despite the existence of very favorable market conditions that
appear to warrant the immediate sale of such properties.
64. Unbeknownst to the Limited Partners, it has
been the Defendants' intent for quite some time, to cause the
Partnerships to continue to hold all or most of the hotel
properties acquired by the Partnerships and Joint Venture for as
long as they will continue to yield profits to Defendants,
without regard either for market conditions or for the
detrimental effect such unwarranted holdings had, and will have,
on the Partnerships and on the Plaintiffs and the Class, who are
entitled to cash distributions and return of capital on their
investments.
65. In 1994, the General Partner received a bona
fide offer from Metric Realty to purchase all of the
Partnerships' properties for prices that would have returned over
$850 per Unit of capital invested by the Limited Partners. Since
Metric provides various services to the Partnerships through MMI
and used to actually manage the Partnerships, it is quite
familiar with the Partnerships' properties and their value.
Nevertheless, the General Partner did not pursue this bona fide
offer.
66. Thereafter, in January 1995, the General
Partner announced that the Partnerships had agreed to pay $2.2
million to MMI to revise its service agreement, including the
elimination of a provision requiring that MMI be allowed to
participate in any refinancings of debt on Partnership
properties. This highly suspicious payment has no valid business
purpose and constitutes a gross waste of partnership assets.
Moreover, it appears to have been made in connection with
Metric's possible abandonment of its prior offer.
67. Each Defendant knows that the real reason for
refraining from selling the Partnerships' interests in the hotel
properties is and was to allow Defendants to continue to obtain
income from the Partnerships and Joint Venture and to lay the
groundwork for Devon's low ball Tender Offer, pusuant to which
Defendants' misappropriated partnership assets and business
opportunities at the considerable expense of Plaintiffs, the
Class and the Partnerships, and each Defendant also knew and
knows that a vast majority of the Class Members desired, and
still desire, liquidity and a maximization in the value of their
investments -- a desire Defendants continue to sacrifice for
their own personal gains.
Defendants' Scheme to Appropriate the Class'
Investments for Less Than True Value,
68. As part of their fraudulent scheme, over the
past few years the Defendants have caused the Partnerships to
expend substantial amounts of money for capital improvements.
69. Each of the Partnerships own interests
directly or through joint ventures, in Hampton Inns Hotels
located throughout the country. The operations of these
properties have been producing steadily increases in income
during the years that NPI and now Insignia have been in control
of the General Partner. In fact, the markets for and resale
values of these properties have been steadily improving for the
past several years, as is demonstrated by the steadily increasing
revenues of the Partnerships. Thus, the defendants are now
attempting, via the Tender Offer, to induce members of the Class
to Unwittingly sell their Units in partnerships with vastly
improved properties at highly inadequate prices.
Defendants' Failure To
Make Distributions To Unitholders
70. Since first obtaining control in 1993, NPI
and insignia have made very negligible cash distributions to the
Limited Partners. As a result, the Partnerships' available cash
balances have been increasing and have been maintained at levels
far in excess of the amounts that could reasonably be required
for operating reserves. For example, GHI has a cash balance of
over $5 million and GHI II has a balance of over $12 million.
The failure to make proper cash distributions has directly caused
a reduction in the demand for Units of the Partnerships on the
resale market and depressed the trading prices available on that
resale market. Such conduct also has had the effect of
increasing the cash that will be available for distributions
after Defendants complete their Tender Offer, thereby depriving
all Class members who tender and sell Units of distributions to
which they are entitled. The withholding of distributions from
the Limited Partners lacks justification and/or any valid
business purposes and constitutes a breach of Defendants'
fiduciary duties.
The Groundwork for the Tender Offer
71. According to the statements made in the
Offering Documents, on October 17, 1995, Icahn telephoned Andrew
Farkas ("Farkas"), chairman of Insignia, to express his interest
in making a tender offer for Units of the Partnerships.
72. Thereafter, Icahn is purported to have met
with Insignia, i.e., Farkas, which was in the process of
acquiring control over the General Partner, and Ashner, who was
in the process of transferring control over the General Partner,
and who was also a partner of an entity, along with the Former
NPI Principals and Apollo, that already owned over 5% of the
outstanding Units of GHI II, in order to discuss forming a joint
venture with NPI and Insignia to make a tender offer for Units of
the Partnerships.
73. Defendants claim that on October 31, 1995,
Ashner informed Icahn that NPI and Insignia were not interested
in forming such a joint venture. Thereafter, in December 1995
through February 1996, discussions between Icahn, Ashner and
Insignia recommenced. During this time frame, the NPI-Insignia
Transaction was closed and Insignia acquired full control over
the General Partner and Insignia and Icahn acquired control over
various NPI affiliates.
74. It was not until February 1996, that the
Defendants claim that they agreed to form Devon. In or around
the same period of time, they contacted PaineWebber to obtain a
$40 million credit facility to finance the Tender Offer for Units
of the Partnerships (the "Loan").
75. Pursuant to the terms of the Loan, which is
for a period of only one year, Devon need only put up $2.5
million of its own capital and pledge the Units it acquires in
the Tender Offer as security for each $10 million borrowed. In
connection with this Loan, Insignia pledged its interests in the
General Partner and Devon agreed to pre-pay the principal of the
Loan from proceeds received by the Partnerships from sales or
refinancings that are attributable to the Units Devon acquires.
PaineWebber conditioned(?) the Loan on its satisfactory
completion of due diligence on all of the entities involved in
Devon and the Partnerships and the Joint Venture. Moreover,
buried in the Offering Documents is a statement that Devon
believes the proceeds from sales or refinancings received from
the units its acquires will enable it to pay off the Loan in
full!
76. On February 13, 1996, Cayuga and Fleetwood
executed the Partnership Agreement of Devon setting forth various
restrictions regarding voting rights on the Units it acquires in
order to ensure that the voting control obtained by Defendants is
exercised in favor of the financial interests of Insignia and to
assure its continued management of the Partnerships.
The Tender Offer
77. On February 15, 1996, the Tender Offer was
made by Devon for approximately 40% of the outstanding Units of
the Partnerships, pursuant to two separate offers to purchase.
The Offering Documents filed by Devon for the two Partnerships
are virtually identical, with the exception of amounts offered
per Unit, the prior trading prices for Units of the particular
Partnership, and the representations concerning the defendants'
estimates of the value of the Units for each particular
Partnership.
78. The Offering Documents each contained similar
statements regarding the methodology and analyses which the
Defendants claim to be the most appropriate method by which to
determine the true current liquidation value of the Units and how
the Defendants purportedly arrived at the two particular offering
prices. However, despite their fiduciary obligations to the
Limited Partners, the General Partner did not retain any
independent advisors to evaluate or provide any opinion with
respect to the fairness of the prices offered by Defendants for
Units of the Partnerships who were left to fend for themselves.
79. Moreover, the Offering Documents omit and
fail to provide highly important financial data that is necessary
to evaluate the fairness of the Offering Prices and defendants'
analyses and the methodologies they employed. These omissions
are particularly important in light of the fact that the Offering
Documents contain several false and/or misleading statements.
Mistatements in the Offering Documents
80. The Offering Documents contain misleading
statements and omissions of material fact in that they contained
statements that were designed to influence the Class with respect
to the fairness and adequacy of the prices offered and the
benefits provided by the Tender Offer, pursuant to which
Defendants emphasized the much lower prices that had been paid
for Units of the Partnerships on the virtually non-existent
secondary market over the year prior to the Tender Offer, the
lack of demand for Units, and the lack of a viable resale market.
Such statements were highly misleading when issued because
Defendants knew, and failed to disclose that such conditions were
caused, in whole or in part, by the wrongful actions taken by
Defendants in connection with their management of the
Partnerships -- such as, the failure to make adequate
distributions in the Partnerships and the use of Partnership
assets to make a $2.2 million payment to MMI and to improve the
properties.
81. On pages 1-2 of the Offer to Purchase annexed
to the Schedule 14D-1's for each Partnership, the Defendants set
forth several reasons why Unitholders may wish to tender Units to
the Defendants:
The Offer will provide Unitholders with an opportunity
to liquidate their investment without the usual
transaction costs associated with market sales.
Unitholders may no longer wish to continue with their
investment in the Partnership for a number of reasons,
including:
- Although not necessarily an indication of value, the
Purchase Price is substantially in excess of recent
secondary market trades for Units.
- The absence of a formal trading market for the Units.
- General disenchantment with real estate investments,
particularly long-term investments in limited
partnerships.
- The continuing administrative costs (such as
accounting, tax reporting, limited partner reporting
and public company reporting requirements) and
resultant indirect negative financial impact on the
value of the Units of a publicly registered limited
partnership.
- More immediate use for the cash tied up in an
investment in the Units.
82. The statements set forth and described in the
paragraph above with respect to the limited opportunities
available to Unitholders to sell their Units and the low prices
at which Units had been sold on the secondary market, prices that
were much less than the offering prices, were false and
misleading because Defendants failed to disclose that the
illiquidity and low trading prices were caused, in whole or in
part, by actions taken by Defendants to cause a lack of demand
and an artificial depression in the prices at which Units had
traded over the past year. In addition, the statements in the
paragraph above are false and misleading because the Class'
investment was not supposed to be a "long term investment" and
would not be if Defendants' would sell the properties. Moreover,
Defendants fail to disclose their knowledge of the future plans
of the General Partner and their knowledge of the expected
proceeds to be received from refinancing of mortgage debt in 1996
and 1997, which they knew, and PaineWebber knows, will provide
enough cash per Unit to pay off the one year Loan.
83. The Offering Documents also omitted the
following material facts:
a failure to disclose necessary facts
relevant to an evaluation regarding the possible disposition of
Partnership properties in the near future -- i.e., the existence
of plans that show that the Defendants intend to continue to
operate the Partnerships for many years into the future and
information concerning the expected proceeds to be received from
refinancings and expected returns per Unit;
b failure to disclose the General
Partner's business plans and the true purposes underlying the
Tender Offer and the value of the Defendants' anticipated profits
flowing from the Tender Offer;
c failure to disclose the full amounts
received by the General Partner and various affiliates from the
Partnership and the Joint Venture;
d failure to discuss whether actions
alternative to the Tender Offer, such as asset sales or
liquidations or solicitation of competing tender offers, would be
appropriate and why such actions have not been explored;
e failure to disclose the circumstances
surrounding the Metric Offer, whether it was pursued or why it
was not pursued;
f failure to fully disclose the
circumstances concerning the payment of $2.2 million of
Partnership assets to MMI; and
g failure to disclose the past and/or
current ties and affiliations of the Fox Investors to Metric
Realty and MMI.
The Voting Control Obtained by Insignia, Icahn
And Apollo Pursuant to the Tender Offer
84. The Units of the Partnerships are widely
held, primarily by individuals, in small unit holdings.
Plaintiffs are informed and believe, and on that basis allege,
that no one person or group (other than groups owed and
controlled by the NPI former principals and Apollo) currently
owns more than 1% of the issued and outstanding Units of either
of the Partnerships.
85. Pursuant to the Tender Offer, Defendants are
seeking to acquire what is currently effective voting control of
each of the Partnerships. Devon also stated in the Offering
Documents that it may, following completion of the Tender Offer,
acquire additional Units of the Partnerships. Thus, if the
Defendants are permitted to consummate the Tender and/or retain
and vote all of the Units purchased in the Tender Offer,
Defendants will be the dominant Unitholder of each of the
Partnerships and thus, limited partner votes of the Partnerships
will become mere formalities and Defendants can attempt to block
legitimate transactions that would maximize the value of Units.
As a result of their obtaining up to 40-45% of the Units of the
Partnerships, the Defendants will have enough voting power to:
(i) effect a breakup of one or both of the Partnerships; (ii)
block any attempts by the minority Limited Partners to remove the
General Partner, even if such removal is warranted, because the
Partnership Agreement requires a majority vote in order to remove
a general partner; (iii) seek to amend the Partnership Agreements
of the Partnerships as they wish; (iv) continue their ongoing
pattern of operating the Partnerships for their own benefit and
thus, continuing to maintain ownership of properties as long as
such properties continue to produce profits for Insignia and the
affiliates that provide services to, and receive funds from, the
management and continued operation of such properties.
86. Because of these control characteristics of
the Tender Offer, the General Partner has been imposed with a
duty to implement measures and take all reasonable steps to
ensure that the Limited Partners of the Partnerships receive the
best value reasonably available for their Units. Moreover, the
General Partner is also contractually bound under the Partnership
Agreements and its fiduciary duties of loyalty, fidelity, candor
and full disclosure, to take such actions to ensure that the
Plaintiffs and the Class may be presented with the opportunity to
maximize the value of their investments.
The General Partner's Highly Improper Association, Participation,
and Continuing Acts to Support, the Defendants' Tender Offer
87. As set forth above, the General Partner owes
specific fiduciary duties to the Plaintiffs and the Class.
However, in connection with the Tender Offer, the General Partner
has failed to take any of the necessary actions to fulfill such
obligations. Instead, the General Partner believes that by
simply disclosing its conflicts of interest in the Schedule
14d-1's filed with the SEC by Devon and purporting to take a
neutral position with respect to the fairness of the Tender
Offer, it is fulfilling such obligations. However, this wholly
inadequate response, which in no way protects the interests of
the Limited Partners, constitutes a clear breach of fiduciary
duty.
88. In order to fulfill Defendants' fiduciary
duties of loyalty, fidelity and candor, the General Partner was
and is obligated to take any, or all, of the following actions
but has not taken any of such actions: (1) retention of an
independent expert to evaluate or render an opinion with respect
to the fairness of the Tender Offer; (2) organization of an
independent committee of Unitholders or other persons to
negotiate the terms and conditions of the Tender Offer on behalf
of the Limited Partners of the Partnerships; (3) consideration of
alternative means of providing a higher price or value to the
Limited Partners of the Partnerships than that which is being
made available to them by the Tender Offer -- such as the sale of
some or all of the properties owned by the Partnerships, the
preparation and presentation of proposals to liquidate the
Partnerships in an orderly fashion, upon which Unitholders could
vote to approve or reject, and/or the solicitation of one or more
competing tender offers for Units; or (4) solicitation of offers
to purchase the underlying properties and assets of the
Partnerships.
COUNT I
[Breach of Fiduciary Duties and Aiding
and Abetting the Breach of Fiduciary Duties]
89. At all times material to this complaint, the
General Partner of the Partnerships, owes and owed a fiduciary
duty to the Partnerships and the Limited Partners of the
Partnerships. These duties include the duties of due care, good
faith, fair dealing, loyalty, honesty and candor in its
management of the Partnerships and a duty not to place its
interests and that of its affiliates above those of the Limited
Partners of the Partnerships.
90. The Defendants, by virtue of their prior and
current control of, and access to, the General Partner, owe the
fiduciary duties specified above to the Limited Partners of the
Partnerships.
91. Each of the Defendants, by virtue of their
continuing interest in and control over the General Partner owes
the fiduciary duties specified above to the Partnership and
Limited Partners of the Partnerships.
92. Defendants have breached, continue to breach,
and/or have aided and abetted, and continue to aid and abet the
General Partner's breaches, of the fiduciary duties owed to the
Partnerships and the Limited Partners of the Partnerships by
engaging in, inter alia, the following wrongful acts, which have
resulted in and continue to cause, a gross waste of partnership
assets: (1) the mismanagement of the Partnerships by causing
them to enter into numerous related party contracts for
management and banking services with the Defendants and their
affiliates which are not economical or in the best interests of
the Partnerships; (2) the refusal to consider, or take any steps
to even explore the benefits that could be derived from the
possible sale of properties owned by the Partnerships, and
failure to sell properties of the Partnerships despite the
existence of very favorable market conditions, solely to allow
Defendants to continue to receive annual income derived from
their management of such properties and ultimately, complete
their plan to acquire control of the Partnerships at a highly
advantageous price; (3) causing the Partnerships to accumulate
highly excessive cash balances by wrongfully refusing to
distribute cash in excess of necessary reserves to Unitholders in
order to cause a further artificial depression in the prices for
Units on the limited resale market for such Units so that the
Defendants' planned Tender Offer would appear to present a
significant premium over the previously available trading price
for units of the Partnerships; (4) the usurpation of a
Partnership opportunity by failing to allow the Partnerships to
acquire Units of Limited Partners seeking to sell Units; (5) the
issuance of false and misleading statements of material facts
concerning the Partnerships' financial condition and the value of
Units so that Defendants could fraudulently induce Unitholders to
tender Units pursuant to the Tender Offer at highly unfair
prices; and (6) the failure to take actions, in connection with
the Tender Offer, to assure themselves and the limited partners
of the Partnerships that the Tender Offer represented the best
value reasonably available for the Units of the Partnerships;
93. Had the terms and conditions of the Tender
Offer been negotiated at arms' length, or had competing offers
been solicited, the Limited Partners of the Partnerships would
have been offered a higher value for their Units on more
favorable terms than those represented by the Tender Offer. In
acceding to and participating in the structuring of the terms and
conditions of the Tender Offer, Defendants have breached, and
continue to breach their fiduciary duties to the Limited Partners
of the Partnerships.
94. By reason of the foregoing acts, practices
and courses of conduct, Defendants have failed to use due care
and diligence in the exercise of their fiduciary obligations
toward Plaintiffs, Members of the Class and the Partnerships.
95. Defendants, in breach of their fiduciary
duties of honesty and candor, have failed to disclose and have
aided the General Partner's failure to disclose material facts as
set forth above and have failed to make all pertinent information
with respect to the Tender Offer reasonably available to the
Limited Partners. In addition, Defendants have purposefully
failed, and have caused the General Partner to fail, to act to
maximize the value of the Unitholders' investments.
96. As a direct and proximate result of the
breaches of fiduciary duties set forth herein, the Partnerships,
Plaintiffs, and the Class have been damaged in amounts to be
determined at trial and Plaintiffs and the Class are also
threatened with irreparable harm, which will occur unless they
are granted the equitable relief requested.
97. In doing the acts complained of herein,
Defendants have been guilty of oppression, fraud, and malice, and
the Partnerships, Plaintiffs and the members of the Class
therefore are entitled to an award of punitive or exemplary
damages in an amount as may be determined at the time of trial.
COUNT II
[For Negligent Misrepresentations]
98. Plaintiffs repeat and reallege all of the
previous allegations.
99. The Defendants have, in connection with the
offering to purchase securities, employed one or more devices,
schemes, or artifices to defraud, made untrue statements of
material fact or omitted to state a material fact necessary in
order to make the statements made, in light of the circumstances
under which they were made, not misleading, and engaged in one or
more acts, practices or courses of business which have operated
as a fraud or deceit upon the Plaintiffs and members of the
Class, as described in more detail above.
100. The Defendants owed and owe fiduciary duties
to the Class and each Defendant knows that the Unitholders,
including Plaintiffs and the Class, in making their investment
decisions, will rely upon the Defendants' statements in the
Offering Documents regarding, inter alia, the illiquidity of
their Units and their inability to sell their Units at the prices
offered by Defendants unless they tendered Units to defendants in
the Tender Offer.
101. The Defendants knowingly issued the material
misstatements and omissions alleged above in order to induce
investors to tender and sell Units. As a result of Defendants'
false and misleading statements and omissions of material fact,
and in reliance upon the false and misleading Offering Documents,
thousands of members of the Class will tender and sell their
Units to Defendants for unfair consideration that does not
reflect the true value of the Units.
102. When the Defendants issued the Offering
Documents, they assumed a duty to speak the full truth and to
make full and complete disclosure of the material facts alleged
above. Yet, the Defendants failed to disclose the highly
material facts set forth above
103. The members of the Class do not know, and have
no reason to believe, that the Offering Documents disseminated by
the Defendants are false and misleading and contain material
omissions. In ignorance of the false and misleading nature of
the Defendants' statements, the members of the Class have relied,
and will rely, on the misleading Offering Documents when they
determine whether to tender their Units.
104. The true value of the Class' Units is
substantially greater than the prices which they will receive
from Defendants. Most, if not all of such Class members would
not sell Units to Defendants at the prices offered if they are
made aware of the misleading nature of the Defendants' statements
and their omissions of material facts.
105. As a direct and proximate result, the Class has
suffered damages and is now faced with irreparable harm.
COUNT III
[For Common Law Fraud]
106. Plaintiffs repeat and reallege all of the
previous allegations.
107. Each of the defendants owed to the Plaintiffs
and other members of the Class, a duty of full disclosure,
honesty, and complete candor. For the purpose of inducing
investors to sell Units in the Tender Offer, and with the intent
to deceive the Class, the Defendants employed a scheme and
conspiracy to defraud, a part of which the defendants made,
participated in the making of, or aided and abetted the making of
the material misrepresentations of fact to Plaintiffs and other
members of the Class. Said representations and statements were
not true and Defendants did not believe them to be true.
108. Plaintiffs and other members of the Class, at
the time of said material misrepresentations and omissions, were
ignorant of the falsity of those statements, and to the extent
that members of the Class actually heard and understood the
material misrepresentations, they believed them to be true. In
justifiable reliance upon the aforementioned misrepresentations
and/or the fidelity, integrity and superior knowledge of
defendants, Plaintiffs and the members of the Class will tender
and sell Units to defendants at artificially depressed prices.
If such members of the Class knew the truth, they are not likely
to sell Units at the prices at which the defendants are offering.
109. By reason of the foregoing conduct by the
defendants, the Class have and will suffer damages. The
Defendants are therefore liable to the Class for fraud.
COUNT IV
[For Violation of the California Unfair
Business & Professions Code Section 17200 -
Unfair and Misleading Advertising]
110. Plaintiffs repeat and reallege all of the
previous allegations.
111. The acts and practices described above, were
and are likely to mislead members of the general public and
therefore constitute unfair or fraudulent business practices
within the meaning of Business & Professions Code Section 17200.
112. Defendants have engaged in unfair and
deceptive trade practices by making the material omissions,
concealments, and suppressions as described above. Defendants
have employed their unfair and unlawful scheme for the purpose of
inducing reliance and with the intent to deceive and mislead
Plaintiffs and the Class.
113. Defendants' unfair and deceptive practices
were committed in connection with the conduct of trade and
commerce.
114. By virtue of the foregoing, Plaintiffs and
the Class have suffered substantial damages.
COUNT V
[Breach of the Partnership Agreements of the Partnerships]
115. Plaintiffs repeat and reallege all of the
previous allegations.
116. Each of the Partnership Agreements of the
Partnerships constitutes a contract between the limited partners
of the respective Partnership and the General Partner.
117. The Partnership Agreements of each of the
Partnerships contain numerous provisions designed to protect the
limited partners of the Partnerships from self-dealing and
overreaching by the General Partner of the Partnerships and its
affiliates. These provisions include prohibitions on: amending
the Partnership Agreement (other than to enhance the rights of
the limited partners) without the consent or vote of the limited
partners (generally by a vote or consent of the holders of a
majority of the issued and outstanding units) and entering into
any transaction entailing the sale of all or substantially all of
the assets of any Partnership, unless the transaction is approved
by the limited partners or is effected in connection with the
liquidation and winding up of the business of the Partnership;
and employing the funds or assets of the Partnership in any
manner except for the exclusive benefit of the Partnership.
118. By engaging in the misconduct described
herein, Defendants have caused the General Partner to breach the
provisions of each of the Partnership Agreements of the
Partnerships. As a direct and proximate result of the breaches
of the Partnership Agreements set forth herein, the Partnerships,
Plaintiffs and the Class have been damaged in amounts to be
determined at trial.
COUNT VI
NEGLIGENCE
119. Plaintiffs repeat and reallege all of the
previous allegations.
120. Defendants owe and owed duties to the
plaintiffs and the Class, as set forth above, and were at all
times responsible for representing to plaintiffs and the Class,
accurate and complete information concerning their investments
and the risks and other material facts involved in the sale or in
retaining units of the Partnerships.
121. Defendants knew that plaintiffs and the Class
would rely on the representations in the Offering Documents.
122. Defendants failed to use reasonable care in
ascertaining and representing completely and accurately the facts
regarding the Class' investments and failed to use reasonable
care, as set forth above.
123. Members of the Class will justifiably rely on
such misrepresentations and omissions in making their decisions
to tender and sell units in the Tender Offer, to their detriment,
causing damages to such Class members.
JURY DEMAND
Plaintiffs, the Class and the Partnerships hereby
demand a jury trial.
PRAYER FOR RELIEF
WHEREFORE, plaintiffs request judgment against
defendants, and each of them, jointly and severally, as follows:
1. Declaring this action to be a proper Class and Derivative
action;
2. Ordering the Defendants to issue corrective disclosures
and prohibiting them from closing the Tender Offer or voting
Units acquired thereby at least until corrective disclosures are
issued;
3. Ordering the Defendants to discharge their fiduciary
duties to the Partnerships; Plaintiffs and the other members of
the Class by announcing their intentions to:
(1) engage independent persons to act on a fully
informed basis in the best interests of the limited partners;
(2) cooperate with all persons, other than
Defendants, having a bona fide interest in proposing any
transaction that would maximize the value of investments in the
Partnerships;
(3) take all steps to create an active auction
for Units of the Partnerships or the Partnerships' properties and
prepare plans for the liquidation of the Partnerships to be
presented for a vote by the Limited Partners; and
(4) adequately ensure that no conflicts of
interest exist between Defendants' own interests and their
fiduciary obligations or, if such conflicts exist, to ensure that
all such conflicts are resolved in favor of the limited partners;
4. Preliminarily and permanently enjoining defendants and
all persons acting under, in concert with, or for them, from
breaching their fiduciary duties;
5. Ordering defendants to permit a committee comprised of
Class members and their representatives to ensure a fair
procedure, adequate procedural safe-guards, and independent input
by plaintiffs and the Class in connection with any transaction
for the units of the Partnerships or the underlying assets of the
Partnerships;
6. Awarding plaintiffs, the members of the Class, and the
Partnerships, compensatory damages as a result of the wrongs
complained of herein, together with appropriate interest;
7. Awarding plaintiffs, the members of the Class and the
Partnerships, their prejudgment interest, and the costs and
expenses of this litigation, including reasonable attorneys' and
experts' fees, and other costs and disbursements;
8. Awarding plaintiffs, the members of the Class, and the
Partnerships, punitive and exemplary damages;
.
9. Awarding such other and further relief as may be just
and proper under the circumstances.
DATED: February 26, 1996
Respectfully submitted,
LAW OFFICES OF
LIONEL Z. GLANCY
By:
Lionel Z. Glancy, Esq.
1299 Ocean Avenue
Sutie 323
Santa Monica, CA 90401
(310) 319-3277
WECHSLER HARWOOD
HALEBIAN & FEFFER LLP
By:
Andrew D. Friedman, Esq.
805 Third Avenue, 7th Floor
New York, New York 10022
(212) 935-7400
VINCENT T. GRESHAM
LAW OFFICES OF
VINCENT T. GRESHAM
6065 Roswell Road
Suite 1445
Atlanta, Georgia 30328
(770) 319-0528
BENJAMIN S. SCHWARTZ, ESQ.
5480 SW 94th Terrace
Miami, Florida 33156
(305) 858-5555
Attorneys for Plaintiffs
