Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

FRY v. TRUMP

February 2, 1988

William Rolland Fry and Carol F. Glassman, derivatively on Behalf of Bally Manufacturing Corporation and representatively on Behalf of themselves and all others similarly situated, Plaintiffs,
v.
Donald J. Trump; George A. Aronoff; James R. Cowan; Alfred C. Linkletter; Patrick L. O'Malley; Kenneth C. Nichols; Robert E. Mullane; James A. Lovell; Pierre A. Rinfret; Walter Wechsler and James M. Rochford, Defendants, and Bally Manufacturing Corporation, Nominal Defendant



The opinion of the court was delivered by: GERRY

 This is a private derivative and class based action by various shareholders of Bally Manufacturing Company ["Bally"] against the directors of that company and former principal shareholder, Donald J. Trump. Plaintiffs make various allegations including breach of fiduciary duty and waste of corporate assets, illegal payment of "greenmail," breach of fiduciary duty and/or aiding and abetting such a breach by defendant Trump, violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated under that Act, violations of Section 17(a) of the Securities Act of 1933, and violation of Section 14(a) of the 1934 Act. Defendants Trump and Bally directors now move under Federal Rules of Civil Procedure 12(b)(6) for dismissal of plaintiffs' consolidated complaint.

 I. FACTS

 It appears that the factual scenario preceding this action can be distilled as follows. Among its other business activities, Bally operates hotels and gambling casinos in Atlantic City, New Jersey and Las Vegas and Reno, Nevada. As of January 22, 1987, Bally had issued 30.9 million outstanding shares of common stock, which is listed and traded on the New York Stock Exchange.

 During the period of November 13, 1986 to December 1, 1986, defendant Trump acquired 9.9% of Bally's outstanding common stock. On November 24, Trump filed a Schedule 13-D with the Securities and Exchange Commission ["SEC"] setting forth his purpose in purchasing this stock. Trump wrote that he had bought the stock "for the purpose of making a significant investment in the company."

 At this stage, according to plaintiffs, Bally's directors feared a hostile takeover attempt by Trump. The directors then reacted, plaintiffs allege, by creating various obstacles to a potential takeover try by Trump, primarily for the purpose of keeping themselves in office. These "obstacles" were as follows. On December 4, the Bally defendants adopted a poison pill -- a "Preferred Stock Purchase Rights Plan." The pill, triggered by acquisition of 20% of Bally's common stock or a tender offer for 30%, permitted stockholders other than the attempted acquirer to purchase $ 120 worth of Bally common for $ 60. Such a pill would force a potential acquirer to pay a very high price in order to control Bally.

 On the same date defendant directors announced a "restructuring plan," the implementation of which, plaintiffs charge, would require a sale of valuable Bally assets in light of its high debt-to-equity capitalization ratio. While the above-mentioned plans were in the works but not yet announced or implemented, however, meetings were taking place between Bally and Trump to discuss the possibility of a friendly takeover. Plaintiffs allege that defendant directors took part in these meetings not in good faith, but only to stall for time while they concocted various obstacles to a potential hostile takeover attempt by Trump. Whatever the reason for these meetings, defendant directors filed a suit against Trump soon afterward seeking a declaration that the poison pill was valid under New Jersey Law, and alleging violations by Trump of federal securities and antitrust laws.

 Finally, Bally defendants entered into a contract to purchase the Golden Nugget Hotel/Casino in Atlantic City for $ 439 million. Plaintiffs charge that this is a grossly overvalued price, and that the transaction was entered into only to make Bally a far less attractive takeover target.

 On December 16, 1986, Trump filed a counterclaim in the suit brought against him by the Bally directors, asserting various claims against Bally and certain officers and directors of the company and alleging a number of common law claims and violations of federal securities laws. In his counterclaim, Trump contended that his claims were "brought to redress and abate continuing injuries inflicted upon Bally stockholders, in general, and Trump, in particular, by Bally and the Bally defendants in the course of an ongoing scheme to entrench themselves in control of Bally and thereby protect their extraordinary salaries, 'golden parachutes' and other lucrative perquisites." Trump's counterclaim went on to charge that the Bally directors had deliberately sacrificed the interests and financial opportunities of Bally and its stockholders for their own personal gain. Plaintiffs allege that also at this time, Trump denied in pleadings and in the press that he was a "greenmailer."

 On December 29, 1986, plaintiff Dixie O'Neill filed a motion to intervene in the above suit, arguing that no party in the Bally-Trump action adequately represented her interests and that Trump did not represent the interests of other Bally shareholders. Trump opposed O'Neill's motion to intervene.

 Around this time, Trump also moved in this court to enjoin consummation of the Golden Nugget purchase. The court ultimately denied Trump's application.

 It is the repurchase agreement which is at the core of the action now before the court. In their consolidated complaint, plaintiffs derivatively charge the Bally defendants with breach of their duties of care and loyalty to the corporation and waste of corporate assets for the sole or primary purpose of protecting their positions with the company. As examples of this alleged malfeasance, plaintiffs note the poison pill and restructuring plans, filing of the lawsuit against Trump, purchase of the Golden Nugget, and purchase of Trump's Bally stock at prices said to be far in excess of its actual market value. Plaintiffs further allege that this payment to Trump constituted illegal "greenmail."

 In addition, plaintiffs contend that Trump, by reason of his substantial holdings of Bally stocks and the position he assumed by asserting (counter) claims on behalf of Bally shareholders, assumed a fiduciary relationship to the company and its shareholders which he breached by accepting the payment for his stock. Furthermore, Trump is alleged to have aided and abetted the wrongful conduct of the director defendants in order to get this illegal payment.

 Violations of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 are also charged, based on a number of public statements Trump made intended (it is claimed) to assure plaintiffs and other Bally shareholders that Trump was looking out for their interests. In a related light, misstatements or omissions of material fact are alleged under Section 17(a) of the Securities Act of 1933.

 Plaintiffs also contend that defendant directors failed to describe certain pending legal actions in a proxy statement dated March 24, 1987, as required by Section 14(a) of the 1934 Act.

 Two counts couched as class actions, and similar to claims described above, have also been advanced by the plaintiffs. A wide variety of relief is sought.

 All defendants now move the court to dismiss plaintiffs' consolidated complaint under Rule 12(b)(6) of the ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.