# Appendix — Terrydale Liquidating Trust v. Barness > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385002_0108%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1988 - **Citation:** 488 U.S. 927 ## Text Z) Supreme Court, U.S. FILED 38 =4 38 SEP 9 1988 No. 88- JOSEPH F. SPANIOL, JR. In THE Supreme Court of the United States OCTOBER TERM, 1988 TERRYDALE LIQUIDATING TRUST, Petitioner, -U- HERBERT BARNESS, JOHN F. BisHop, EpGar H. CHAPPELL, CuHar.es W. Corsitt, GEorGE S. MANN, BROOKS WALKER, Jr., Lours W. WALKER, and CHaARLEs M. WILLIAMS, individually and as Trustees of, and Davip B. BRYANT as Trustee of, SAN FRANCISCO REAL EsTATE INVESTORS, and Kerrn L. Brown, individually, and as SAN FRANCISCO REAL Estate INvesTors, INC., Respondents. APPENDIX TO PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT SIDNEY BENDER*® AARON LEWITTES JANINE L. BENDER LEVENTRITT LEwITTEs & BENDER 1205 Franklin Avenue Garden City, New York 11530 (516) 742-4250 Counsel for Petitioners September 9, 1988 3 * Counsel of Record TABLE OF CONTENTS Appendix A, Opinion of the United States Court of Appeals for the Second Circuit dated May 12, 1988, affirming the judgment of the District Court. Appendix B, Final Judgment of the United States District Court, Southern District of New York (Sand, J.), dated August 28, 1987..........0.0.0. Appendix C, Judgment of the United States District Court, Southern District of New York (Clerk), co | rer reer TTT Terre eee Appendix D, Decision on the merits of the United States District Court, Southern District of New York (Sand, J.), dated August 26, 1986........... Appendix E, Opinion on motions for summary judgment of the United States District Court, Southern District of New York (Sand, J.), dated og | Per ST err ere ree Tere eer er Appendix F, Motion for Sanctions, Fees and Costs against SFREI and its Attorneys ..............4.- Appendix G, Motion for discovery relating to agree- ments to make payments on behalf of SFREI for any legal fees of the former Trustees of TRT, Michael Gramlich and James Kostoryz, in con- nection with their deposition and trial testimony. Appendix H, Affidavit of Douglas M. Kraus, dated POM TS, TT anctenans tees Sens po eee Appendix I, Excerpt of Murphy testimony......... Excerpt of O’Flaherty testimony ...... Excerpt of Stamper testimony......... Excerpt of Kostoryz testimony ........ Excerpt of M. Gramlich testimony .... Excerpt of J. Gramlich testimony ..... Excerpt of J.R. Gramlich testimony ... la 10a 12a 13a 62a l4la ll TABLE OF CONTENTS Appendix J, Affidavit of Steven M. Umin, dated abn ee os Appendix K, Affidavit of David A. Welte, dated Appendix L, Letter from Rogers & Wells to the Honorable Leonard B. Sand dated July 31, 1987, Appendix M, Letter from Landels, Ripley & Diamond to the Honorable Leonard B. Sand, dated July 30, 7 Appendix N, Arguments on plaintiff's motions (i) for sanctions to strike the award of an attorneys’ fee to SFREI and (ii) for discovery on SFREI’s tampering with plaintiff's witnesses, on August eb Bench rulings (Sand, J.) denying plaintiff's mo- tions on Augant 27, EN. cee 158a 160a 163a 164a 167a 194a 198a 2)4a la Appendix A UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT oe No. 793—August Term 1987 Argued: April 7, 1988 Decided: May 12, 1988 Docket No. 87-7867 - TERRYDALE LIQUIDATING TRUST, Plaintiff-Appellant, —_—Vi— HERBERT BARNESS, JOHN F. BISHOP, EDGAR H. CHAP- PELL, CHARLES W. CORBITT, GEORGE S. MANN, BROOKS WALKER, JR., LOUIS W. WALKER, and CHARLES M. WILLIAMS, individually and as Trustees of, and DAVID R. BRYANT as Trustee of SAN FRAN- CISCO REAL ESTATE INVESTORS, and KEITH L. BROWN, individually, and as SAN FRANCISCO REAL ESTATE INVESTORS, INC., Defendants-Appellees. SAN FRANCISCO REAL ESTATE INVESTORS, INC., a Dela- ware corporation, successor in interest to San Fran- cisco Real Estate Investors, a California real estate investment trust, ; Counterclaimant and Third-Party Plaintiff, 2a TERRYDALE LIQUIDATING TRUST, a New York business - trust: TERRYDALE REALTY TRUST, a Missouri busi- ness trust: OLIVER R. GRACE, OLIVER R. GRACE, JR., EMILIO G. COLLADO, WILLIAM BOLTON, and ROBERT A. POSNER, individually and as trustees of TERRYDALE LIQUIDATING TRUST; J. RUSSELL GRAMLICH, J. HARLAN STAMPER, THOMAS J. MURPHY, JOHN D. O’FLAHERTY, and JOHN J. GRAMLICH, individually and as trustees of TERRY- DALE REALTY TRUST; LINCOLN TOWER BUILDING Co., a Colorado partnership, SUBDALE CORPORA- TION, a New York corporation, MORRIS, LARSON, KING, STAMPER & BOLD, a Missouri professional cor- poration, HARRY A. MORRIS, ROY A. LARSON, THOMAS E. KING, J. HARLAN STAMPER, LAWRENCE R. BOLD, LYNN C. HOOVER, DONALD H. LOUDON, GORDON N. MYERSON, STEVEN H. GOODMAN, TOMMY W. TAYLOR, LAURENCE R. TUCKER, DAVID M. RHODES, ROBERT B. KEIM, JACK W. ISLEY, JR., THOMAS R. LARSON, STEVEN G. EMERSON, GREGORY M. KRATOFIL, JOHN A. KOEPKE, and JOHN R. COCKLE, individually and as partners of MORRIS, LARSON, KING, STAMPER & BOLD, Counterclaimant and Third-Party Defendants. Before: OAKES, MINER, Circuit Judges, and POLLACK, District Judge.* + . Honorable Milton Pollack, Senior United States District Judge for the Southern District of New York, sitting by designation. 3a Appeals from summary judgment order dismissing claim of aider and abettor liability of purchaser of real es- tate assets of trust, sold in alleged breach of fiduciary duty of trustees; and from dismissal after trial of claim for res- titution from purchaser as constructive trustee; and from incidental rulings and orders made during the litigation. Affirmed. - SIDNEY BENDER, Garden City, NY (Aaron Lewittes, Janine L. Bender, Leventritt Lewittes & Bender, of Counsel), for Plaintiff-Appellant. REX E. LEE, Washington, DC (Gene C. Schaerr, David Orentlicher, Sidley & Austin, of Counsel), for Plaintiff- Appellant. DOUGLAS M. KRAUS, BARRY GARFINKEL, New York, NY (Erskine D. Henderson, Mitchell C. Sockett, Skadden, Arps, Slate, Meagher & Flom, of Counsel), for Defendants-A ppellées. > PER CURIAM: This appeal grows out of six years of litigation stem- ming from an unsuccessful struggle in 1981 for contro! of a registered Missouri real estate investment trust, Terry- dale Realty Trust (‘‘TRT’’). ee 4a On January 9, 1981, BCG Associates (‘‘BCG’’), a New York partnership, made an unsolicited tender offer for 34.7% of the shares of TRT, offering $33.50 per share, in cash. The purpose of the offeror was to obtain control of TRT. Had the shares been acquired under the offer, when added to the 17.9% interest already owned by BCG’s prin- cipals, it would have given BCG absolute control of TRT. Allowing for proration of tendered shares, the TRT stock- holders would have had only a small amount of their shares purchased for cash, with the remainder being re- turned to them. The trustees, believing that the tender offer was not ac- ceptable, sought to obtain a better offer from BCG, viz., an agreement on its part to acquire 100% of TRT’s shares at the $33.50 price, but BCG refused to amend its offer to include all shares to TRT. The trustees would not have op- posed BCG’s tender had it been for all of the TRT shares. There were substantial disadvantages for TRT’s stock- holders apparent in BCG’s partial offer, including loss of TRT’s favorable tax status, a probable decline in market- ability of its shares, and possibly cessation of its status as a reporting company under the Federal Securities Laws, among other things. The trustees, two of whom were also substantial share- holders, set about to seek more attractive alternatives for TRT’s shareholders. They solicited bids from numerous corporate and real estate investors, including seven of the largest and most sophisticated realty investors in North America. The TRT trustees, in essence, put TRT up for “‘auction’”’ to the highest bidder. None of the sources ap- proached was willing to offer a transaction which would yield more than $33.50 to all TRT shareholders. Ulti- mately, the trustees turned to San Francisco Real Estate a Ey am 5a Investors, Inc. (“‘SFREI’’), and negotiations with the lat- ter ripened into a proposal from SFREI to purchase TRT’s four Denver office buildings, representing about 80% of the value of TRT’s assets, a purchase to be made at prices set forth in recently obtained independent appraisals. None of the other potential White Knights was willing to make an offer as attractive as that of SFREI, and the Dis- trict Court explicitly found that SFREI’s offer was the best offer available. TRT made the sale, and the trustees simultaneously voted to liquidate the trust and declared a liquidating divi- dend, thereby thwarting the tender offer. An initial liqui- dating distribution of $24 per share was declared. Over the next 12 months, a further $9.85 was distributed to TRT shareholders, bringing the total proceeds of the sale and liquidation to $33.85 per share for 100% of TRT’s shares. After the trustees’ decision to sell and liquidate was an- nounced, BCG extended its tender offer expiration d1te, and adjusted its offering price to $9.50 per share in order to take into account the $24.00 per share initial liquidating dividend. BCG acquired 80,884 shares pursuant to its ex- tended tender offer, leaving it with approximately 38% of the outstanding TRT shares. During 1981, BCG continued to purchase TRT shares through a series of open market purchases. By January, 1982, BCG had apparently ac- quired just under 50% of the outstanding TRT shares. On January 28, 1982, the TRT shareholders approved the creation of the Terrydale Liquidating Trust (‘“TLT’’), the named plaintiff and appellant in this action, and elected as TLT trustees a slate of nominees controlled by the BCG group. BCG then caused TLT, newly controlled by what, in essence, was a defeated tender offerer, to be named plaintiff in this suit (1) against the former trustees 6a of TRT, charging that they sold the TRT property at dis- tressed prices to defeat the tender offer in the service of personal interests of some of the trustees, and (2) against SFREI, the purchaser of the realty, alleging that it had aided and abetted the allegedly tainted sale, and in any event, that it had sufficient notice of the trustees’ alleged breach of fiduciary duty to warrant the equitable claim of restitution from SFREI. In December, 1982, TLT reached a settlement with the former TRT trustees under which TLT abandoned its law- suit against them and SFREI remained as the only defen- dant in the lawsuit. In June, 1984, SFREI made a motion for summary judgment, which the District Court granted in part and de- nied in part. 611 F. Supp. 1006, 1031, 1033 (S.D.N.Y. 1984). The Court found that there was no genuine factual issue in respect to plaintiff’s claim that SFREI was an aider and abettor of the alleged breach of fiduciary duty of the trustees or to the alleged breach of the unanimity pro- vision of the Declaration of Trust. The aider and abettor liability claim was therefore properly dismissed on sum- mary judgment for TLT’s failure to establish the key ma- terial issue, SFREI’s actual knowledge. Marine Midland Bank v. Smith, 482 F. Supp. 1279, 1290 (S.D.N.Y. 1979), aff’d mem., 636 F.2d 1202 (2d Cir. 1980). SFREI’s con- structive knowledge was an insufficient basis for recovery. The Court denied summary judgment on an alleged domination and control issue pertaining to the trustees. The sale to SFREI required the approval of three of the five trustees, including two affirmative votes from among trustees Stamper, Murphy, and O’Flaherty. All trustees had voted to sell the assets, and the question raised tn 7a whether the votes were independent suggested the need of a factual determination, as stated by the Judge: Whether the affirmative votes of the non-Gramlich trustees [the three outsiders] were legally effective and valid, however, will depend on whether plaintiff can establish its claim of domination and control by the Gramlichs. The existence ve/ non of domination and control, and of SFREI’s notice of same, involve fac- tual determinations which prevent this Court from presently resolving the merits of plaintiff’s restitu- tional claim. 611 F. Supp. at 1033 (footnote omitted). After a 14-day non-jury trial in 1986, the District Court, in a comprehensive and well-reasoned opinion, dismissed TLT’s remaining claims against SFREI on the merits. 642 F. Supp. 917 (S.D.N.Y. 1986). In considering, evaluating, and determining to make the sale of the properties, the trustees were found to have mea- sured up to the standard set in Hanson Trust PLC v. ML SCM Acquisition Inc., 781 F.2d 264 (2d Cir. 1986), of rea- sonable diligence in gathering and considering material information. The ‘‘independent’’ trustees deliberated a period of days, not hours, before approving the deal. Dur- ing that time, as the evidence showed, the trustees solicited extensively for bids for the assets or stock. Unlike Han- son, the TRT trustees were not presented with ‘‘more or less a fait accompli.’’ Rather, the trustees, with the assis- tance of their expert advisors, considered not just the SFREI proposal, but all available alternatives, and the in- dependent trustees had called a separate meeting on their own initiative at which they gave separate consideration to the available options; they properly concluded that only a deal struck with SFREI would benefit a// shareholders. | 8a The duty, indeed the obligation, of the TRT trustees under the circumstances of this case was to maximize the value for all shareholders, and Judge Sand had ample basis upon which to conclude that the trustees had met their duty of care. They were found to have sought, in the exercise of an informed business judgment, a solution which would benefit 100% of the shareholders of the trust, rather than leaving them to be forced into a minority position in an entity of which BCG had control, and with little hope of ever realizing the full value of their remain- ing investment in TRT. TLT never established a prima fa- cie case for breach of the duty of loyalty or the duty of care and the burden to defend the transaction as fair and reasonable never shifted. Norlin Corp. v. Rooney, Pace Inc., 744 F.2d 255, 264 (2d Cir. 1984); Hanson Trust PLC, supra, at 277. The District Court rejected plaintiff’s contention, as contrary to fact, that the Gramlichs had acted in self- interest and in bad faith; and it found that the non- Gramlich trustees had acted independently, reasonably, and were not dominated and controlled as alleged; and it found that all the trustees had properly exercised their duty of care. In voting for the sale under the proposal and the Plan of Complete Liquidation, it is clear that the trust- ees fully recognized that they were voting to give up their positions of control of TRT and any possible benefits that they might derive from the continued existence of TRT. The Judge found further that no circumstances existed which would warrant imposition of a constructive trust, since there was an absence of SFREI’s actual knowledge of any alleged breach by the trustees. Incident to this hold- ing, the Judge resolved the facts as showing that the ap- proval of the sale and the liquidation of TRT did not 9a violate the terms of TRT’s Declaration of Trust; that the sale was under all the facts and circumstances reasonable; and that SFREI had no reason to investigate the actions of the trustees or to think that there was any breach by them. The District Judge went into the values of the properties sold, giving careful consideration to and weighing the ap- praisal testimony, and found that the sales had been made within the current fair market value. SFREI’s offer was found explicitly to be ‘‘the best offer available’; the Judge found that there was no ‘‘fire sale,’’ as contended by the plaintiff, and that SFREI’s expert had given credible and reliable testimony. On the facts and circumstances in evi- dence, the Court properly rejected the contrary hindsight appraisals of TLT’s expert. At hand were accurate reflec- tions of the property values, especially in view of the long- term leases held by a number of tenants. Significantly, SFREI, an independent outsider, had purchased the prop- erties in an arm’s-length, reasonable, commercial transac- tion. The records on the motion for summary judgment and of the trial satisfy us that Judge Sand’s factual findings thereon are not clearly erroneous; to the contrary, they are amply supported by the record and we agree with his con- clusions and rulings on the law substantially for the rea- sons given by him therefor. The requests for Rule 60(b) relief and Rule 11 sanctions are without any merit whatsoever. The other specifications of alleged error appealed from have each been examined and we find that there is no merit in them. AFFIRMED. 10a Appendix B UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK SAME TITLE FINAL JUDGMENT 82 Civ. 7920 (LBS) #87, 1578 Upon the opinion of the Court dated November 19, 1984 granting in part defendants’ motion for summary judgment, the Court’s opinion after trial dated August 26, 1986, the Court’s opinions dated October 24, 1986 and April 15, 1987, respecting reimbursement of attorneys’ fees and expenses, and its bench rul- ings dated August 27, 1987, and upon all of the other papers filed and proceedings had herein, ‘t is hereby ordered that Final Judg- ment be entered in this action as follows: 1. The claims of plaintiff Terrydale Liquidating Trust (“TLT”) against defendant San Francisco Real Estate Investors, Inc. (“SFREI”) and all of the other defendants herein are dis- missed with prejudice. 2. The claims of SFREI against counterdefendants and third party defendants which have not previously been disposed of are hereby dismissed with prejudice. 3. SFREI shall recover from TLT, and TLT shall pay to SFREI, the sum of $1,453,847.10, representing SFREI’s reason- able attorneys’ fees and expenses through August 28, 1987, and SFREI shall further recover post-judgment interest on such sum at the rate specified in 28 U.S.C. § 1961 from October 24, 1986 in the amount of $69,663.51, for a total award of $1,523,510.61. SFREI shall further recover post-judgment interest on such total lla award from the date hereof to the date of payment, pursuant to 28 U.S.C. § 1961. | Dated: August 28, 1987 New York, New York Leonard B. Sand United States District Judge 12a Appendix C UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK SAME TITLE JUDGMENT A non-jury trial before the Honorable Leonard B. Sand, U.S.D.J. having begun on June 10, 1986, and at the conclusion of the trial the Court having reserved its decision; and the Court thereafter on August 26, 1986, having handed down its OPINION (#59760), dismissing the complaint, it is, ORDERED, ADJUDGED AND DECREED: That the complaint be and it is hereby dismissed. Dated: New York, N.Y. Raymond F. Burghardt August 28, 1986 Clerk PRT ana coma A es A i SF. a wey vy nae RSP fe Ty aA re et en UMS a 13a Appendix D TERRYDALE LIQUIDATING TRUST, Plaintiff, v. Herbert BARNESS, et al., Defendants. SAN FRANCISCO REAL ESTATE IN- VESTORS, INC., Counterclaimant and Third-Party Plaintiff, v. TERRYDALE LIQUIDATING TRUST, et al., Counterdefendants and Third Party Defendants. 82 Civ. 7920 (LBS). United States District Court, S.D. New York. Aug. 26, 1986. Leventritt, Lewittes & Bender, Garden City, N.Y., for plaintiff; Sidney Bender, Aaron Lewittes, Janine L. Bender, of coun- sel. Skadden, Arps, Slate, Meagher & Flom, New York City, for defendants; Douglas M. Kraus, Erskine D. Henderson, Barry H. Garfinkel, Mitchell C. Sockett, of counsel. l4a SAND, District Judge. Plaintiff, Terrydale Liquidating Trust (“TLT”), a New York business trust that is the successor in interest to Terrydale Real- ty Trust (“TRT”’), brought an action against San Francisco Real Estate Inves- tors, Inc. (“SFREI’’) and the individual trustees of San Francisco Real Estate In- vestors, seeking to hold them liable as aid- ers and abettors of an alleged breach of fiduciary duty and as constructive trustees of property allegedly sold to them in viola- tion of the seller’s fiduciary duties and Declaration of Trust. On November 19, 1984, this Court granted defendants’ mo- tion for summary judgment in part and dismissed the claim that they were aiders and abettors of said breach. Terrydale Liquidating Trust v. Barness, 611 F.Supp. 1006 (S.D.N.Y.1984) (hereinafter “Terry- dale”). Both defendants’ and plaintiff's motions for summary judgment as to plain- tiff’s equitable claim for restitution were denied, however, because material ques- tions of fact existed as to whether there was a breach of fiduciary obligation or Declaration of Trust and, if so, whether defendants had sufficient notice thereby 15a such that they held the acquired assets as constructive trustees for plaintiff's benefit. Id. at 1012. On June 10, 1986, the action proceeded to trial. For the reasons stated below, we find that plaintiff also has failed to establish any liability on defendants’ part with respect to plaintiff's claim for equitable restitution. FACTS This case presents, with some significant variations, what has become a common phenomenon in the securities field: efforts by management to resist and defeat hostile takeovers by enlisting the aid of a “white knight” or other inhibitory tactics. Here, the significant variations relate to both the nature of the target and the relief sought as well as the role defendants played in the subject transaction. First, :the target was a Missouri Real Estate Investinent Trust (“REIT”) which, under relevant IRS provi- sions, would have lost its preferred tax status and other benefits if five or fewer of its shareholders owned 50% of its stock. Second, having settled its claims against the target’s trustees and having had its claims for other relief dismissed, plaintiff l6a now seeks to impose upon the white knight—the entity that purchased most of its assets—a constructive trusteeship over those assets for the benefit of the target’s shareholders. Plaintiff premises this claim on a theory that the purchaser knew or should have known that the sale constitut- ed a breach of the TRT Declaration of Trust and of the target’s trustees’ fiduci- ary obligation to the target’s shareholders. Plaintiff has succeeded in establishing that this Court has personal jurisdiction over the defendants and subject matter jurisdic- tion over plaintiff's claim for equitable res- titution. The facts underlying this litigation and its complex procedural history already have been articulated in several prior opinions. See Terrydale, 611 F.Supp. at 1012-1014; see also Terrydale Liquidating Trust v. Gramlich, 549 F.Supp. 529 (S.D.N.Y.1982); Bolton v. Gramlich, 540 F.Supp. 822, 827- 30 (S.D.N.Y.1982). Familiarity with these prior opinions shall be assumed and the facts will be restated only to the extent necessary to set forth our findings of fact and conclusions of law pursuant to F.R. Civ.P. 52(a). 17a Briefly, BCG Associates (hereinafter “BCG”), a New York limited partnership, commenced an unsolicited tender offer for 160,000 TRT shares at a price of $33.50 per share. If successful, the offer would have given BCG virtual majority ownership of TRT. The TRT trustees decided to pursue alternatives to BCG’s offer and “met or otherwise communicated with seven other bidders for the purpose of soliciting either a tender offer for all or part of the TRT shares or an offer to purchase the assets of TRT. The trustees also attempted, without success, to persuade BCG to amend its offer to provide for purchase of all out- standing TRT shares.” Terrydale, 611 F.Supp. at 1013 (footnote omitted). After a Canadian company, Unicorp Fi- nancial Corporation, decided not to enter into the battle for control of TRT, its presi- dent, George Mann, notified SFREI (40% of whose stock was owned by Unicorp) of the TRT opportunity. SFREI eventually pro- posed to purchase approximately 80% in value of TRT’s assets (2.e., four office buildings located in Denver, Colorado) after originally expressing interest in acquiring all of the outstanding TRT shares. 18a Several meetings of the TRT trustees . followed. First, they met as a group on . February 2, 1981, to consider the SFREI proposal and other alternatives to the BCG tender offer. The “independent trustees,” t.e., those who were not members of the Gramlich family, met on February 5 and concluded that the SFREI offer was in the best interests of all the TRT shareholders. All of the TRT trustees unanimously ap- proved the sale of the Denver properties to SFREI on February 6 and, in addition, adopted and disclosed a liquidation plan whereby the proceeds of the SFREI sale would be distributed to TRT shareholders along with the remaining trust assets. A liquidating dividend of $24 per share would also be distributed on February 23 to all the TRT shareholders of record as of Feb- ruary 19. 1. Breach of Fiduciary Duty In our most recent opinion involving this litigation, we determined that the business judgment rule/duty of loyalty analysis was applicable to the trustees of a REIT. Ter- rydale, 611 F.Supp. at 1016. We also not- | ed that plaintiff had submitted sufficient evidence to create issues of fact regarding ee 0 On ee ee EE ome nen a 19a the self-interest of trustees John Gramlich, J. Russell Gramlich, and J. Harlan Stamp- er; the Gramlichs’ domination and control over trustees Murphy, O’Flaherty, and Stamper (to the extent Stamper was not otherwise self-interested); and the fairness and reasonableness of the transactions at issue. Terrydale, 611 F.Supp. at 1019-32. Thus, for plaintiff to prevail in its remain- ing claim against defendants, it must prove by a preponderance of the evidence, that, under the applicable analysis, the TRT trustees breached their fiduciary duty. Where business trustees have acted in good faith and have exercised honest judgment in lawful and legitimate further- ance of the trust’s purposes, courts will neither inquire into nor interfere with their actions. See Norlin Corp. v. Rooney, Pace Inc., 744 F.2d 255, 264 (2d Cir.1984) (quoting Auerbach v. Bennett, 47 N.Y.2d 619, 629, 419 N.Y.S.2d 920, 926, 393 N.E.2d 994, 999 (1979)).' This posture of respect is affiliated with the “duty of care’ prong of the trustee’s duty to the shareholders—+z.e., “the responsibility of a ... fiduciary to exercise, in the performance of his tasks, 20a the care that a reasonably prudent person in a similar position would use under sim- ilar circumstances.” Norlin, supra, 744 F.2d at 264; see also Hanson Trust PLC v. | ML SCM Acquisition, Inc., 781 F.2d 264, 273 (2d Cir.1986). The duty of loyalty, the second prong of a trustee’s obligation to shareholders, “derives from the prohibition against self-dealing that inheres in the fidu- ciary relationship.” Norlin, 744 F.2d at 264. Once plaintiff has made a prima facie showing that the trustees had a self-inter- est in the subject transaction, “the duty of | loyalty supercedes the duty of care, and ) the burden shifts to the [trustees] to ‘prove that the transaction was fair and reason- able to the trust.’"” Norlin, 744 F.2d at 265 (quoting Treadway Companies, Inc. v. Care Corp., 638 F.2d 357, 382 (2d Cir.1980); see also Hanson, supra, 781 F.2d at 273. The Second Circuit has recently written that “ijt is not enough that [trustees] merely be disinterested and thus not dis- posed to self-dealing or other indicia of a breach of the duty of loyalty.” Hanson, supra, 781 F.2d at 274. Rather, they also must meet the standard of due care “with ‘conscientious fairness’”—i.e., they must a | ~ at eee 2la make informed decisions after “gathering and considering material information” with “reasonable diligence.” Jd. (citation omit- ted). If they adhere to “ ‘methodologies and procedures’ [that] are ‘so restricted in scope, so shallow in execution, or otherwise so pro forma or halfhearted as to consti- tute a pretext or sham,’ then inquiry into their acts is not shielded by the business judgment rule.” Jd. (quoting Auerbach, supra, 419 N.Y.S.2d at 929, 393 N .E.2d at 1002-003); but see id. at 285-91 (Kearse, J., dissenting). Plaintiff alleges the two Gramlich trust- ees’ self-interest as predicated upon desired continued management of the properties and the receipt of fees and commissions therefrom as well as their personal debt situation. Defendants seem to have con- ceded that the two Gramlich trustees were “interested” (see Letter of June 30, 1986 from Attorneys for Defendants at 6), but, more importantly, the remaining trustees perceived the Gramlichs to be “interested” and arranged to meet separately to discuss the SFREI transaction. See, e.g., Tr. 484- 85. 22a We note, however, that although plaintiff contends the Gramlichs’ dire financial Straits prompted their desperation to con- summate the deal with the ‘white knight’ which led to the sacrifice of the best inter- ests of the shareholders (see Terrydale, 611 F.Supp. at 1020-21), this does not ap- pear to have been the case. While it is true the Gramlichs had a $890,872 loan obli- gation falling due on February 10, 1981 (td.), J. Russell Gramlich testified that the payments on the note could have been met by turning the Gramlichs’ stock over to BCG at the last moment if “{they] had no better offer for our stockholders.” Tr. 1419-20. Michael Gramlich apparently “was in Kansas City with all [of the] stock ready to tender it to the Grace people in case this deal didn’t go through with (SFRE]I].” Tr. 1431. Although this plan poses certain difficulties regarding John Gramlich’s and Michael Gramlich’s appar- ent ignorance of it (see Plaintiff's Supple- mental Memorandum of Law of July 29, 1986 at 49-52 (‘‘Plaintiff’s Supp. Memo.”’’)), the Gramlichs’ prior announcement advis- ing shareholders not to tender their stock, and possible short-swing profit problems, 23a 15 U.S.C. § 78p(b), it at least indicates that the Gramlichs were not as ‘‘desperate’’ as plaintiff intimates. Moreover, J. Russell Gramlich also testified that his other in- vestments could have helped cover the loan. Tr. 1419. We also reject plaintiff's contention that the Gramlichs’ self-interest and bad faith likewise were demonstrated by their deci- sion to announce the consummation of the transaction no later than Friday, February 6, 1981. According to plaintiff, the docu- mentation regarding rent adjustments sup- ports its view that the closing did not take place until Monday, February 9, 1981. Pre- trial Order at Exh. 3B (“Plaintiff TLT’s Factual Contentions’) 1182; Tr. 602. Thus, the Gramlich trustees allegedly ac- celerated the announcement so that the TRT shareholders would know they would receive a liquidating dividend and thereby defeat the BCG tender offer. This acceler- ation also allegedly prevented BCG from seeking to enjoin further consummation of the closing because of the latter’s belief that the entire deal had been finalized on February 6, 1981. 24a In fact, as Stamper testified, a title com- pany acting as TRT’s agent had received the proceeds of the sale on February 6, 1981 “and they had held it over the week- end because they had no means to transmit it until Monday.” Tr. 595; 600-01. It was therefore TIRT’s position that it had the right to declare the dividend on February 6, 1981. Most importantly, however, on the facts of the case and the state of events at that time, it seems highly improbable that any court would have granted BCG injunc- tive relief. Assuming the Gramlich’s self-inter- est, though, “the Board as a whole cannot be charged with having acted from self-in- terest where less than a majority are found to have done so.” Buffalo Forge Co. v. Ogden Corp., 555 F.Supp. 892, 904 (W.D. N.Y.) (emphasis added) (citing Treadway, supra, 638 F.2d at 358), affd, 717 F.2d 757 (2d Cir.), cert. denied, 464 U.S. 1018, 104 S.Ct. 550, 78 L.Ed.2d 724 (1983); but see Dynamics Corp. v. CTS Corp., 794 F.2d 250, 256 (7th Cir.1986) (a conflict of interest is not cured by vesting the power of deci- sion in a board of directors in which insid- we Rett Ch ee ar A ae Nar AIT NO a RO a hata te 25a ers are a minority). We are satisfied as a factual matter that of the non-Gramlich trustees, Stamper was not “improperly in- fluenced by personal considerations or ben- efits not available to other shareholders generally” (see Terrydale, 611 F.Supp. at 1022 (citations omitted)) and Murphy, O’Flaherty, and Stamper were not so domi- nated and controlled by the Gramlichs that their independence and financial disinterest were overcome. /d. at 1022 (citing Aron- son v. Lewis, 473 A.2d 805, 812 (Del.1984)). Although it was bad judgment to allow the personal attorney for the Gramlichs and TMC, James Polsinelli, Esq., to attend the independent trustees’ meeting, we find that Polsinelli’s presence at that meeting did not undermine the independent trustees’ care- ful and objective consideration of the SFREI offer and their primary concern for the interests of all of the shareholders.’ See text infra. Lack of self-interest alone, as we already have noted, is not enough to satisfy a fidu- ciary’s duty of care. In Hanson, supra, the Second Circuit reversed the district court’s denial of a motion for a preliminary injunction restraining the exercise of a 26a lock-up option despite the fact that it agreed that the defendants had not acted fraudulently, in bad faith or out of self interest. 781 F.2d at 274. According to the court, what made out a prima facie case of a breach of the duty of care, shift- ing the burden of justification to the de- fendants, was the failure of the directors ‘to take many of the affirmative directorial steps that underlie the finding of due care.” Jd. at 275. For example, the di- rectors had voted for the lock-up option with a “paucity of information” after a three hour meeting, thereby not availing themselves of the week’s time available before the tender offer deadline. 781 F.2d at 271, 275. Moreover, if they had inquired into the value of the two optioned business- es (which generated half of the target’s income but represented only one-third of the purchase price for the entire company) rather than “contented themselves with their financial advisor’s conclusory opinion that the option prices were ‘within the range of fair value,’” they would have learned that the range of fairness had not been calculated and Goldman Sachs had not even prepared a written opinion as to the VS A a teat a eae os 27a value of the two optioned businesses. /d. at 275. According to the Second Circuit, other things evidencing the improper exer- cise of due care included the fact that the target’s principal financial advisor indi- cated that an “orderly sale’ could achieve higher prices for the optioned businesse. , no opinion had been offered as to what kind of company the target would be with- out these “core” businesses, and the Board had failed to ensure the negotiations of alternative bids and, in essence, rubber- stamped a proposal engineered by manage- ment directors holding a potential 15% eq- uity interest in the arrangement. /d. at 276-77; see also id. at 269-70. This Court finds that in the instant case, the trustees properly exercised their duty of care. The Board in Hanson was faced with an unsolicited tender offer for “any and all shares of [the target’s] com- mon stock’ for a price per share that was conditionally raised twice without the tar- get’s request during the course of lever- aged buyout negotiations between the tar- get and a third party. 781 F.2d at 270, 272. In contrast, the TRT trustees faced a partial tender offer replete with potential 28a disadvantages.* Like the Board in Han- son, the TRT trustees sought out other alternatives under tremendous time pres- sures; however, the latter also unsuccess- fully sought to negotiate with the tender offeror for the purchase of ali outstanding TRT shares while the former ignored the tender offeror’s “overtures for discus- sions.” See 781 F.2d at 269, 270. Although discussions with SFREI did not develop into a final proposal until approxi- mately February 5, 1981, the TRT trustees had been discussing the proposed asset sale as well as other alternatives since Febru- ary 2, 1981. Thus, their unanimous vote for the final proposal on February 6, 1981 followed four days of consideration com- pared to the three hours in which the inde- pendent trustees in Hanson for the first time learned about and approved the new leveraged buyout merger agreement and the proposed lock-up option. 781 F.2d at 271; see also Dynamics Corp., supra, 794 F.2d at 256-257 (target’s management an- nounced its opposition same day unsolicited tender offer was announced without study- ing any business or financial implications of tender offer or consulting with target’s cow: eet) ee ee 29a outside directors). Moreover, the transac- tion at issue in Hanson demanded the Board’s “heightened duty of care” in order to ensure that one did not cross the critical line between a price low enough to lure a reluctant potential bidder and one lower than “ ‘reasonable permission w{ould] al- low.’” 781 F.2d at 276 (emphasis in origi- nal) (citations omitted). Since no lock-up option was at issue in the instant matter, a “heightened duty of care” was not de- manded. Plaintiff emphasizes certain factors as evidencing the TRT trustees’ breach of their duty of care. These factors relate to the Graimlichs’ self-interest in defeating the BCG tender offer and how this self-interest allegedly led to a sacrifice of the property at distressed prices. See Plaintiff's Memo- randum of Law Opposing Defendants’ Mo- tion to Dismiss, Under the Business Judg- ment Rule (June 27, 1986) at 7.4 According to the Second Circuit in Hanson, to the extent that self-interest impacts upon the duty of care even after a court has deter- mined that there was no fraud, bad faith or self-dealing, it calls upon independent trust- ees to take “at least some of the prophylac- 30a tic steps that were identified as constitut- ing due care in Treadway [, supra ]’’ when a self-interested management has made the proposal at issue. Hanson, 781 F.2d at 277. In Hanson, however, on top of its 15% equity interest, management was dis- cussing a leveraged buyout with the invest- ment banking concern ultimately hired as the Board’s advisors before the Board first met to discuss the unsolicited tender offer, and it was management and these advisors who generated a response to the tender offeror’s raised bid. 781 F.2d at 277. Con- fusion over whether the law firm Wachtell, Lipton, Rosen and Katz _ represented management or the Board, moreover, con- tinued “{e]ven after [the firm] was formal- ly retained by the Board.” Jd. Not only were none of these factors present in the TRT transaction, but the Gramlichs certain- ly did not present the independent trustees with the SFREI proposal “more or less as faits accompli, which [the independent trustees] then quite hastily approved.” /d. The Gramlichs also did not do something that was appropriately criticized in Dy- namics Corp., supra, 794 F.2d at 256-257 —hire an investment advisor to prepare a —_ 3la “fairness opinion” who was to receive a bonus if the tender offeror lost a proxy fight. Even if the Gramlichs’ alleged interests amounted to the same sort present in Han- son, a finding of a breach of the duty of care would not be warranted. In Tread- way, supra, the directors, among other things, hired an investment banking firm to negotiate for them and to assist in evaluat- ing the various proposals, asked numerous questions and requested pro forma balance sheets for the combined company, and con- ditioned. their approval of the transaction on obtaining an opinion regarding its fair- ness. 638 F.2d at 384. Nowhere, however, nave these actions been prescribed as the sole means by which this duty can be ful- filled. See Dynamics Corp., supra, 794 F.2d at 258 (particular methodology used by target to analyze tender offer would have been of “little moment” if the defen- sive tactic adopted had been acceptable be- cause the court had “no desire to force boards of directors into a judicialized mode of proceeding and ... recognize{d] the time pressure under which the board was oper- ating”’). 32a Here, the independent trustees called a separate meeting pursuant to their own initiative. See text supra. They also knew that the cash each shareholder would receive was approximately the same under either proposal, but that only a deal struck with SFREI would benefit ali the share- holders; > that no other “white knight” was willing to offer anything above this value; and that the BCG tender offer might not only wreak havoc with TRT’s tax status but also could leave minority shareholders in a very disfavorable position. The inde- pendent trustees even considered revaluing the Denver properties and concluded that other problems would obviate the predict- ability and worth of new appraisals, Plain- tiffs Exh. 14A (e.g., the instability of the Denver market; the various encumbrances on the properties; etc.); moreover, the time exigencies created by the BCG tender offer mooted this possibility. Finally, by pledg- ing their approval of the SFREI proposal, they did not foreclose further bidding for TRT. See Hanson, 781 F.2d at 264; see also Dynamics Corp., supra, 794 F.2d at 258. In fact, the BCG tender offer was instead extended and adjusted to reflect 33a the liquidating dividend, by January, 1982, BCG had acquired just under 50% of the outstanding TRT stock, and a slate of BCG nominees was elected to serve as trustees of TLT when it was created on January 28, 1982. Terrydale, 611 F.Supp. at 1014.‘ Even if we found that the TRT trustees had breached their duty of care, we would need to determine whether the shifted burden of proving the fairness and reasonableness of the transaction has been met. See Hanson, 781 F.2d at 277. We find that such is the case. It should be noted at the outset that the idea of liquidating TRT was not-first prom- ulgated as a response to the BCG tender offer. John Gramlich had been suggesting liquidation “for a couple of years” (Tr. 205; see also Tr. 1264) in order to deal with a problem REITs collectively had been fac- ing—the undervaluation of their stock. See Tr. 841; 1237-38; 1843. As Stamper testified at trial, [W]e had discussed whether there would come a time where we had a duty to the shareholders because of the underlying value to liquidate and give them their 34a money back. The reason we had con- sidered it more than a year before was because the value of our shares had got- ten down to somewhere around 12 or 14 dollars, as I recall it, and we wondered whether it was fair to the shareholders to just continue giving them dividends at the level we were able to or whether we ought to actively consider selling the properties and giving them their money back and letting them reinvest in some- thing else. Tr. 564. Courts generally have treated challenged transactions that facilitate plans which were under consideration before any- one moved to acquire stock more favorably than those “cooked up” solely in response to cuntests for control. See Norlin, supra, 744 F.2d at 265 n. 7; see also Treadway, supra, 638 F.2d at 383; Crouse-Hinds Co. v. Internorth, 634 F.2d 690, 703-04 (2d Cir.1980). Thus, it does not “strain{ } cre- dulity” to discern merit in the SFREI trans- action and subsequent TRT liquidation. Norlin, 744 F.2d at 265. That such merit conceivably is present is buttressed by a comparison to Joseph E. Seagram & Sons, Inc. v. Abrams, 510 35a F.Supp. 860 (S.D.N.Y.1981). There, a tender offer prompted the board, once legal proceedings collapsed, to announce “a pro- posed buy-out of a small segment only of stockholders, using the corporate till to ac- complish this at a price [$15 per share above the tender offer price] and with a preferred stock issue in the back- ground....” 510 F.Supp. at 861. A “fren- zied search for a competitive third party offer” had not as yet panned out and “a proposed selling off of the assets was in contemplation by a plan to seek the sale of {the target’s] attractive properties, ... one of ... which yield[ed] 10% of the corporate earnings, and to raise more cash to buy in more stock in that way with the company’s treasury.” /d. at 861-62. In issuing a temporary restraining order sought by the tender offeror, Judge Pollack opined that {ijt [wa]s inconceivable that an alleged flourishing enterprise ha{d] authorized its board to subject ... the company to a scorched earth policy ... merely to thwart a change in existing stock ownership which may end the tenure of the present directors and key officers of the company.” /d. at 861. 36a Plaintiff has attempted to show that the sale of the Denver properties was not fair to TRT and its public shareholders because the buildings were grossly undervalued. Specifically, plaintiff has alleged that the June 1980 appraisal of the Lincoln Tower Building prepared by Blain Chase under- stated its true value as $18,000,000. Plain- tiff claims that this undervaluation was evidenced by the November 1982 sale clos- ing of the same building by Lincoln Tower Building Company (when values in the Den- ver office building market were lower) to Subdale Corporation for $26 million. Plain- tiff also points to Chase’s “Preliminary Re- valuation” of the fee in the amount of $24 million on February 2, 1981. Plaintiff fur- ther claims that Chase, inter alia, utilized in his June 1980 report a capitalization rate that was too high and an economic rental rate that was too low. With respect to the Petroleum Building, sold to SFREI for $6,713,000, plaintiff claims that the revised appraisal of Van Court & Company (October 1980) over- looked both a significant change in rental rates and the sale of the Lincoln Center Building, the same sale that had prompted ALE ES 6 0 RR, Bail EE TB DOS Paes dea ee EE Sete Bon SES Se TCR ee ey ee coe ere te en Nt ake Cone nan tb 37a Chase’s ‘Preliminary Revaluation” of the Lincoln Tower Building. Plaintiff also claims that the market in February 1981, when TRT sold the Petroleum Building, was no different than that in December, 1981, when SFREI did a property analysis and evaluation of its leasehold interest in the building and valued it at $12,400,000 (“almost double what it paid TRT’’); Jo- seph J. Blake & Associates received and concurred with SFREI’s estimate of cur- rent fair market value. Plaintiff's Exh. 62. As to the Travelers Building (also known as the “101 University Building’’), sold to SFREI for $2,485,000, plaintiff first claims that TRT itself admitted in January, 1981 that it appraised the building to Mid Ameri- can Bank at $4 million. Plaintiff also claims that the May 1980 Van Court & Company appraisal was obsolete as of Feb- ruary, 1981 due to the fact that the entire building became vacant on July 31, 1980, allowing SFREI to lease the entire building at the then higher current market rates. Finally, plaintiff once again compares the appraisal to SFREI’s own December, 1981 property analysis and evaluation, with which J. Blake and Associates concurred, ———————— 38a valuing the leasehold interest at $4,950,000. Plaintiff's Exh. 48. With respect to the Century Bank Building, plaintiff also claims that TRT sold its fee interest at a price substantially below the building’s fair market value. Plaintiff's expert witness, Joseph Farber, MAI, CRE, also estimated the value of the leasehold estate interests in three of the subject properties as of February 6, 1981. Mr. Farber concluded in his report that the values were as follows: (a) Lincoln Tower Building —$17,150,000; (b) Petroleum Building —$11,750,000; (c) Travelers Build- ing—$3,875,000. Plaintiff's Exh. 662 at 3. He also concluded that the value of the third mortgage owned by TRT against the Lincoln Tower Building was $6,930,000 and that the value of the leasehold estate inter- est in this same building may have in- creased somewhat by the later April 22, 1981 date. Jd.’ We find that the burden of justification for the transaction has been met primarily by the introduction of “evidence to rebut [plaintiff's] extensive evidence that the [building] prices were undervalued.” Han- son, 781 F.2d at 277. The Court’s role, of oe VO ek 39a course, is not to ascertain “the ‘precise value’”’ of the buildings. Jd. at 278; cf Alpert v. 28 William St. Corp., 63 N.Y.2d 557, 483 N.Y.S.2d 667, 675, 473 N.E.2d 19, 26 (1984). Rather, it is to determine wheth- er the burden of proving that the SFREI transaction was fair and reasonable has been met. For example, in Lewts v. S.L. & E., Inc., 629 F.2d 764 (2d Cir.1980), a share- holder’s derivative suit where it was al- leged that the corporation’s assets were wasted, the Second Circuit held that de- fendants had failed to prove that the rental paid for the years 1966-72 was fair and reasonable. However, although it noted that defendants’ own evidence supported plaintiff's suggested fair rental value, the Court never determined for its own pur- poses the precise rental rate. /d. at 772. With respect to the valuation of the four Denver properties sold to SFREI, this Court is convinced that the marketplace at that time was its most faithful indicator. First, the trustees never quarreled with the fairness of the BCG price of $33.50 per share and would have approved the tender offer if they had been successful at con- vincing BCG to make it available to all 40a TRT stockholders. See, e.g., Tr. 144-45; 147; 195-96; 500; 698; 702; 1249-50. Sec- ond, in Murphy’s words, “at least seven sophisticated investors [refused] to pay more than, at least offer [sic] $33 and a half a share.” Tr. 148; see also Tr. T07-08, 752, 1246-48. As one of the defendants’ expert witnesses testified, a “spotlight” was on TRT as early as December, 1981 when the Grace people filed a 13D form, soon followed by a proxy fight and tender offer. Tr. 1813 (testimony of Jeffrey Bloomberg, Managing Director of Bear Stearns & Co.). These events indicated to the world at large that a public company was “in play and anyone interested in ac- quiring assets for [sic] the company is alerted that the assets or the company will be available and starts to make inquiry.” Tr. 1814. Thus, under such circumstances, interested parties tend to surface and the offers tend to approximate the current fair market value. Tr. 1850. We also do not find any merit in plain- tiff’s contention that John Gramlich’s search for a deal at $35 per share (knowing he would have ‘‘to settle somewhere in between 35 and 33.50,” Tr. 811) effectively ius Rabi) attain bette gh 4la proscribed higher offers. Tr. 1484. Not only were four of the trustees themselves in the real estate business (1.e., the Gram- . lichs, O’Flaherty, and Murphy), making it extremely doubtful that they would be un- aware of the trust’s “unburied treasure’ (see text infra), but if the value of the stock was as high as plaintiff projects, SFREI would not have been the only bid- der. In Hansan, supra, where one of the businesses was optioned at $350 million, “one of the first potential ‘white knight’ leveraged buyout firms ... contacted ... valued [that particular business] at about $550 million as part of its consideration as to whether it would make a tender of- fer....”" 781 F.2d at 279. No such evi- dence from other prospective bidders was adduced here. In fact, the principals of BCG themselves declined to bid for ‘the very building (Lincoln Tower) plaintiff now claims was worth at least $24 million when the Lincoln Tower Building Company of- fered it to them for approximately $19 mil- lion on or about February 17, 1981 (the latter was prepared to first exercise its option to acquire the building from SFREI). 42a Pretrial Order at Exh. 10B(i) (“SFREI’s Proposed Findings of Fact Relating to Plaintiff’s Claims Against SFREI’”) 1 148- 49: Tr. 1032-35; see also Letter from De- fendants’ counsel of July 24, 1986 at 8-9. Defendants’ own expert witness, E. Nel- son Bowes, MAI, CRE, reviewed the ap- praisals for the four Denver properties on which the sale price was based and conclud- ed that they were reasonable both at the time they were rendered and on February 6, 1981. We agree with Bowes’ conclusion. With respect to the Lincoln Tower Building and Blain Chase’s February, 1981 “Prelimi- nary Revaluation,’ we agree that even if one were to characterize it as a new ap- praisal, others knowledgeable in real estate may have found it inappropriate to apply the capitalization rate that had been uti- lized to appraise the Lincoln Center Build- ing, a newer, different class building (2.e., class A, while Lincoln Tower was class B) ® situated in a better location. Thus, what- ever plaintiff's explanation is for Chase’s subsequent retraction from his February, 1981 “Preliminary Revaluation,” (Pretrial Order at Exh. 3B (“Plaintiff TLT’s Factual Contentions”) 102; see also Chase Dep. of 43a May 16, 1984), the bottom line is that it was reasonable for the TRT trustees that knew about it (see, e.g., Tr. 82, 88-89, 556, 816, 829, 832, 835-37; contra Plaintiff's Supp. Memo. at 1-12) not to have relied upon it. In fact, Stamper, John J. Gramlich and J. Russell Gramlich all testified that even if the Lincoln Tower Building had been worth $24 million in February, 1981, they would have voted for the SFREI sale (primarily because it took all of the shareholders out for the most money then offered). See Tr. 556-57, 837-39, 1447; see also text infra. Plaintiff's criticisms of the methodology and numerical data (e.g., for rental and capitalization rates, Plaintiff's Exh. 662) used in the original appraisals of all of the buildings also have been adequately ad- dressed by the defendants (see generally Defendants’ Exh. U (Bowes’ Appraisal Re- view Four Buildings); Tr. 1872-1986) and changes in the Denver rental market from the appraisal dates up until February 6, 1981 seem to have only either compensated for earlier overvaluations or made minor differences in the ultimate price. More- over, what impresses this Court most with respect to the validity of these original 44a appraisals is that neither the appraisers nor the owners themselves, who were valuing their own property, had any motivation to misstate the value. See Tr. 1882 (Farber himself “did not think that there was any intention of any of these appraisers to in any manner, shape or form come to a con- clusion that was made as instructed by a client’’). Compared to what the Hanson court found raised a serious question that the assets had been significantly undervalued, the criticisms voiced here, even if justified, seem minor. See Buffalo Forge, supra, 555 F.Supp. at 905 (noting that valuations are not an exact science); see also Tr. 1883 (testimony of Joseph Farber) (stating that real estate appraisal is an art rather than a mathematical science). In addition to what | already has been mentioned, the target’s principal advisor in Hanson (its investment banker at Goldman Sachs) himself testified that he had utilized tonnage, “ ‘a lousy way to value’’”’ one of the optioned businesses and had employed a very significant mea- sure of valuation, expected earnings, with “the two lowest actual and projected earn- ings years in a ten-year sequence.” 781 3 7 7 4 Deendispenieteennnl Wee ee, een 4 ieee a 45a F.2d at 278. Moreover, using his own firm’s valuation charts and applying what he considered appropriate price-earnings ratios at the evidentiary hearing, he valued one of the target’s divisions at a minimum of $70 million above the price it had been optioned for. /d. at 279; see also id. at 280 n. 10. With regard to the other division optioned in the Hanson transaction, “ ‘no document was produced in discovery which reflect{ed] a valuation or divestiture of [it] at less than $100 million prior to the grant of the Lock-Up Option;’” nonetheless, it was optioned for $80 million. Jd. at 270, 280; see also Dynamics Corp., supra, 794 F.2d at 258-259 (criticizing poison pill that, among other things, burdened the target with a new, long-term fixed debt and pre- cluded a hostile tender offer). Probably what is most indicative of the fairness of the SFREI transaction relates to the Gramlich trustees’ 30% equity inter- est in TRT. As Bloomberg testified, the situation at hand did not involve “profes- sional management [which generally] has a different axe to grind; [rather, what was involved was] a trustee group that ha{d] a great economic interest in maximizing the 46a value for all shareholders.” Tr. 1822; see also Tr. 1810. If the assets were truly undervalued, the Gramlichs would have been forfeiting a tremendous sum of mon- ey for nothing in return—ze., “the sale to San Francisco didn’t carry a golden para- chute or long-term employment contract so that [the Gramlichs] would get money as opposed to other shareholders.” * Tr. 1810, 1822. There is thus lacking a motivation for allegedly underselling the shareholders. In essence, the interests of the rest of the shareholders were on a par with those of the Gramlichs and everyone concerned re- ceived the same benefits from the liqui dation. BCG’s own refusal to extend its offer to 100% of the available shares or effectuate any “second step” or “back end” transac- tion to acquire the shares not purchased pursuant to the tender offer adds support to this conclusion. See Tr. 1803-04. So does the uncertainty of the remaining alter- natives. For instance, plaintiff contends that an orderly liquidation in the year fol- lowing the tender offer would have maxim- ized the return to TRT shareholders. How- ever, there was no guarantee that BCG 47a would choose to liquidate following a suc- cessful tender offer; it had previously re- frained from committing itself to such a course of action and even a decision to subsequently liquidate may not have been to the remaining shareholders advantage. Tr. 1805; Defendants’ Exh. W (Jeffrey Bloomberg’s Opinion Letter) at 8. If the TRT trustees had made their own an- nouncement urging shareholders to reject the BCG offer in lieu of a planned liqui- dation one year down the line, moreover, defeat of the partial tender offer was equally unlikely. Tr. 1801-02, 1849; see also Defendants’ Exh. W at 7; Dynamics Corp., supra, 794 F.2d at 254; Lowenstein, Pruning Deadwood in Hostile Tukeovers: A Proposal for Legislation, 83 Colum.L. Rev. 249, 254, 307-09 (1983). Its success would have resulted in a less of REIT status and the resulting diminished value of the company as well as a fall in the stock’s market price. See Defendants’ Exh. W at 5-6. This is mot an instance where the trust- ees “‘end{[ed] the auction with ... little objective improvement’ ” or wanted SFREI “in the picture at all costs.” Hanson, su- 48a pra, 781 F.2d at 283 (quoting MacAndrews & Forbes Holdings, Inc. v. Revion, 501 A.2d 1239, 1249 (Del.Ch.), aff'd, 505 A.2d 454 (1985)). Rather, the trustees selected the best offer available at a time when some immediate action was mandated. See Buffalo Forge, supra, 555 F.Supp. at 904. We have scrutinized the transaction with great care because we recognized that cer- tain of its attributes rendered it superrficial- ly suspect—e.g., the willingness of defend- ants to purchase the Lincoln Tower Build- ing subject to a right of first refusal; the seller's request that the buyer render an opinion as to the TRT trustees’ ability to conduct the transaction. See, e.g., Tr. 1300-01; 1320-23; 1391. Nevertheless, in our view, the transaction has been justified by the fact that the values at which the properties were sold to SFREI were fair and reasonable and the way it served other important trust and shareholder interests. See Norlin, 744 F.2d at 267; see also De- fendants’ Exh. W at 6 and text supra; Terrydaie, 611 F.Supp. at 1025; Alpert, supra, 483 N.Y.S.2d at 676, 473 N.E.2d at 27 (transaction must have involved not only fair dealing and fair price, but must have 49a treated all shareholders equally). Unlike the action taken by the directors in Han- son, this action, viewed in its entirety, “re- dound{[ed] to the benefit of [TLT] and its shareholders.” Hanson, 781 F.2d at 281. 2. Knowledge of Breach of Fiduciary Duty Even if the TRT trustees had breached their fiduciary duty, a duty of restitution could be imposed on SFREI only if the latter knew or should have known that a breach had been committed. Terry- dale, 611 F.Supp. at 1031. In other words, the defendants can only be held liable as constructive trustees of the transferred properties if they knew or should have known that a breach of fiduciary duty had occurred. /d. at 1032.'° 7 At trial, we noted the burdén that would be imposed by holding a _ purchaser “chargeable with all that goes on in the inner councils of the seller” simply by vir- tue of the fact that the former either has made a bargain purchase or is aware of the seller’s distress. Tr. 765; see also Terry- dale, 611 F.Supp. at 1030-31. However, this is a bridge we need not cross as we are convinced that if the values of the TRT 50a properties were such common knowledge that anyone operating in the market would or should have known of them, TRT would have been able to obtain an offer at a higher price than that proposed by SFREI. As we have already rejected other explana- tions offered for the market’s silence, we conclude that SFREI cannot be presumed to have known that the TRT trustees had breached their fiduciary duty."' Other factors also lead to this conclusion. As we noted earlier, defendants made cer- tain “uncontradicted assertions estab- lish{ing] the basis for their belief in the reasonableness of the transaction from TRT’s point of view” (Terrydale, 611 F.Supp. at 1029)—e.g., legitimate reasons for opposing the BCG tender offer; its offer to purchase TRT’s assets was higher than any other offer on a per share basis; instability of the Denver market and risks associated with acquiring the TRT proper- ties derived from “ ‘due on sale provisions,’ necessary renovations, [and] long-term ‘ leases at unfavorable rents.” /d. Thus, to the extent, if any, that defendants were required to make an inquiry,'? they fulfilled their duty and came up with sufficient | 5la facts to reasonably conclude that the trust- ees had not breached any duty and that SFREI’s purchase of the assets would be legitimate. See Pretrial Order at Exh. 10B(ii) (““SFREI’s Proposed Conclusions of Law Relating to Plaintiff's Claims Against SFREI’’) 19 112-24 and cases cited therein. Finally, we have previously noted that the Restatement (Second) of Trusts “pro- vides appropriate and helpful guidance in resolving the issue of notice.” Terrydale, 611 F.Supp. at 1031 n. 44: Among the circumstances which are or may be of importance are the following: (1) whether he knows that the person with whom he is dealing is in fact a trustee; (2) the extent to which he has reason to believe that the person with whom he is dealing is or may be a trust- ee ...; (3) the character of‘ the property dealt with, whether it is land or a chattel or a chose in action, negotiable or non-ne- gotiable; (4) whether the transaction is one in the ordinary course of the busi- ness of the trustee; (5) whether the trustee is disposing of the property for much less than its real value; (6) wheth- er the third person knows or has reason 52a to believe that the trustee is dealing with ~ | the property for his own benefit; (7) whether the third person is purchasing . the property or engaging in some other : transaction with the trustee, as for exam- ple where he is making a payment or conveyance to the trustee ... or is acting : as depository of trust funds ... or is a corporation registering a transfer of se- curities ... or is engaged in some other dealings with the trustee.... Id. (quoting Restatement (Second) of Trusts § 297, Comment a (1959)). As defendants point out, factor 5 is ab- sent as “this is not a case in which the disparity in price is so overwhelming and absence of legitimate business purpose so evident that knowledge of irregularity can reasonably be presumed.” Terrydale, 611 F.Supp. at 1030-31 (citation omitted); see also Pretrial Order at Exh. 10B(ii) (“SFREI’s Proposed Conclusions of Law Relating to Plaintiff's Claims Against SFREI”’) 1121. In facet, Joseph Farber’s testimony confirmed that even if the valua- tions were understated, they were not so understated as to inadvertently put any purchaser on notice. Rental, vacancy and ici aaeaaaeieienamnema iain Ce ee aan Cee we ee 53a operating expense rates within ten percent of those utilized by Farber, a margin of error he himself found acceptable, could lead to appraisal values closely approximat- ing those obtained by TRT’s original ap- praisers. See Tr. 1957; 1974.’ Farber also articulated that “there is room for question in every appraiser’s interpretation of the marketplace” (Tr. 1882) and that it was judgment, neither competence nor method- ology, which separated his own figures from those derived by Blain Chase and Van Court & Company. Tr. 1877, 1881; 1883- 84. Finally, we already have determined that the market place was the best indica- tor of valuation and that it reflected the fairness of the price paid by SFREI. Com- pare instant case with Rippey v. Denver United States National Bank, 273 F.Supp. 718 (D.Colo.1967); Estate of Rothko, 84 Misc.2d 830, 379 N.Y.S.2d 923 (1975), de- cree modified and otherwise aff'd, 56 A.D.2d 499, 392 N.Y.S.2d 870, aff'd, 43 N.Y.2d 305, 401 N.Y.S.2d 449, 372 N.E.2d 291 (1977). Defendants also note that “the TRT trustees were not dealing with the Denver principals for their own account (factor 6) 54a . and ... SFREI was negotiating ‘an arm’s length commercial transaction’ in which [it] had ‘an independent duty to ob- tain the most favorable terms’ (Factor 7).” Pretrial Order at Exh. 10B(ii) (“SFREI’s Proposed Conclusions of Law Relating to Plaintiff's Claims Against SFREI”) { 121; see Terrydale, 611 F.Supp. at 1030; 1032- 33. Thus, the inquiry outlined by the Re- statement (Second) of Trusts provides addi- tional support for our conclusion that de- fendants should not be held to have known that the TRT trustees breached their fiduci- ary duty (if one assumes that said breach | has been established). Conclusion For the foregoing reasons, this Court finds that by voting for the transaction with SFREI and the liquidation plan, the ) TRT trustees breached neither TRT’s Dec- laration of Trust nor the fiduciary duty they owed to the REIT’s shareholders. Even if they had breached this duty, there would have been no basis upon which to conclude that the defendants should have known that such a breach had occurred and thus held to be constructive trustees of the 55a subject properties.'* In short, we conclude that, lacking actual knowledge of any breach (see note 10 supra ), no circumstanc- es existed here (e.g., extreme undervalua- tion of assets) which would warrant imposi- tion of liability as a constructive trustee. Complaint dismissed. SO ORDERED. 1. See also Wolgin v. Sirnon, 722 F.2d 389, 393 (8th Cir.1983). As we already have concluded, Missouri law is applicable in the instant case. Terrydale, 611 F.Supp. at 1015. However, “[tJo the extent that no directly applicable Missouri precedents exist,” we utilize the law from other jurisdictions for guidance. /d.; see also id. at 1018. 2. We also find credible the independent trust- ees’ testimony on this matter. Murphy, for in- stance, testified that he did not recall Polsinelli having made any comments and that his pres- ence had not at all affected Murphy's thinking. Tr. 160, 191. O'Flaherty, who himself called for the meeting, testified that Polsinelli had asked Stamper whether or not he could attend the meeting and that Stamper told Posinelli it would probably be all right. Tr. 510. O’Flaher- ty, in line with his duty as chairman of the meeting, questioned Polsinelli's presence, but “had great trust in Mr. Stamper’s judgment.” 56a Id. O'Flaherty also did not recall Polsinelli’s making any particular statements at the meet- ing. /d.; see also Tr. 512. Although Stamper __ “signed the minutes for the meeting which said, ‘As the attorney for the Gramlich family, Mr. Polsinclli believed that the Gramlichs would have preferred that the trust purchase Stern warrants’ ” (Tr. 750), he, too, considered Polsi- nelli's presence “immaterial.” Tr. 678, 682. Moreover, we note that even if the comments made by Polsinelli at this meeting accurately portray his role as one of urging adoption of the SFREI plan, our conclusion remains unaltered. See Plaintiff's Exh. 14A (in addition to what is stated above regarding the Stern warrants, Pol- sinelli commented twice during the meeting that other potential buyers would not pay what SFREI was offering and stated once that they had to “take a hard look at whether or not we should liquidate”). 3. In fact, in Hanson, the Board seems never to have made any determination regarding the ad- vantages or disadvantages of the unsolicited tender offer. See 781 F.2d at 268. In the month before the tender offer was first an- nounced at a price of $60 per share, moreover, the target’s stock was trading at below $50 per share. /d. 4. The Court reserved decision on defendants’ motion on June 30, 1986. Tr. 1489. 57a 5. Plaintiff alleges that in Dynamics Corp., supra, the Seventh Circuit rejected a similar justifica- tion proffered by management. There, CTS’s contention that the tender offer could not be considered fair when Dynamics was seeking only 17.9 percent of the shares was rejected because (a) since Dynamics already owned 9.6 percent of the shares, every fifth shareholder would get the price it now offered, and (b) all the shareholders benefited ex ante due to the fact that the announcement of the tender offer caused the stock’s price to rise. Dynamics Corp., supra, 794 F.2d at 257. The Seventh Circuit did admit, however, that “some stock- holders would not have known about the move- ment in the price and some who did know would adhere to a buy-and-hold strategy, and so not sell.” /d. Finally, as we already have not- ed, all of this would have been of “little mo- ment” to the Seventh Circuit if the adopted defensive tactic had been “a plausible measure for maximizing shareholder wealth.” /d. 6. Since we have held that the independent trust- ees were not so dominated and controlled by the Gramlichs that their affirmative votes for the SFREI transaction and the liquidation plan were rendered invalid, we conclude that the sale to SFREI was not in violation of TRTs Declara- tion of Trust, Article III, § 14. Terrydale, 611 F.Supp. at 1012, 1032-33; see note 10 infra. 7. See also Plaintiffs Memorandum of Law Cov- ering SFREI Liability and Duty of Restitution of July 17, 1986 at note 7. 58a Plaintiff also alleged at trial that the availabil- ity of below-market financing on the properties added value to the transaction and should have been recognized in the cash component of sales proceeds received by the seller. Plaintiff's Exh. 663 (Report prepared by David Kaplan, Senior Vice President of The Harlan Company, Inc.); see also Tr. 1540-43. It is unlikely, however, that after negotiating with a lender over poten- tial assumption of a mortgage with a due on sale clause (negotiations involving payment to the lender, thereby raising the interest rate) that the buyer would reward the seiler with a higher purchase price. Tr. 1543-46. More important- ly, however, buyers could choose to take what they would have to pay up front to assume the mortgage to open a CD and utilize the consider- able interest so generated. See Tr. 1560-65. Down the road, those buyers could refinance at a more favorable rate, id.; thus, they would still have the lump sum available to them that others who had purchased the below-market financing could never recoup. Tr. 1568. 8. According to Mr. Farber, there is no definitive description of class A and class B buildings and what is usually meant when these terms are utilized is how a given building competes with others “of the same genre on the same floor plate and the same elevating [sic] system.” Tr. 1997-98 (“the basic definition of a class A build- ing is how does his rent compare with his com- petition”). He also stated that the age of the building would not preclude it from falling into the class A category and that the Lincoln Tower a — s”.hCU 59a Building, although constructed in 1965, was a class A building. Tr. 1998-99. Although we accept that this may be the view- point of some appraisers, we cannot find any reason to criticize the viewpoint of others in the real estate business who do see age as one of the decisive factors in valuation. Moreover, it ap- pears that it was not only the class differential which led defendants’ expert, E. Nelson Bowes, to conclude that the Lincoln Center Building was not a good comparable for the Lincoln Tower Building. See Defendants’ Exh. U at 16- 17; Tr. 1645-47; 1653. 9. Plaintiff intimates that the management fees and commissions received by TMC after the asset sale and liquidation (Terrydale, 611 F.Supp. at 1019) were a “material benefit” not available to other shareholders. See Pretrial Order at Exh. 3B (“Plaintiff TLT’s Factual Con- tentions”) 19; see also Tr. 1822. However, if the properties were truly valued as plaintiff al- leges, the Gramlichs would have ‘suffered a tre- mendous loss by opting instead for these fees and commissions. Moreover, one of defend- ants’ experts testified at trial that he had “looked at the fees involved [and] these people were not overpaying themselves when they adopted the plan of liquidation.” Tr. 1822 (testimony of Jeffrey Bloombery). 10. In our most recent prior opinion, we noted that SFREI's actual knowledge of a breach of Lesieeasiniaas a _ 60a duty must be proven in order to sustain plain- tiffs claim of aiding and abetting. Terrydale, 611 F.Supp. at 1027. We dismissed the claim because no genuine issue had becn created “re- garding SFREI's alleged knowledge of the un- fairness and lack of business purpose surround- ing the sale and liquidation transaction.” /d. at 1028. Furthermore, since we have concluded that there was no violation of TRTs Declaration of Trust (see note 6 supra), defendants cannot be held as “constructive trustees” under the the- ory that they “should have known” that the independent trustees were dominated and con- trolled by the Gramlichs, rendering their votes for the transaction invalid. Terrydale, 611 F.Supp. at 1033. Thus, in order to impose a duty of restitution on SFREI, plaintiff really must prove that SFREI should be presumed to have known that a breach of fiduciary duty had been committed. See Pretrial Order at Exh. 10B(ii) (“SFREI's Proposed Conclusions of Law Relating to Plaintiffs Claims Against SFREI") 7 109. 11. Our conclusion would be the same whether or not we accepted plaintiffs contention that under Missouri law, “defendants have the bur- den of proving that they took the propertics with no notice of the breaches of trust.” See Plaintiffs Memorandum of Law Covering SFREI Liability and Duty of Restitution of July 17, 1986 at 22 and cases cited thercin; but see Pretrial Order at Exh. C (“SFREI's Contentions with Respect to Disputed Factual Matters”) 75 (alleging that plaintiff bears burden of proof on issue of defendant's constructive notice). 6la 12. See Restatement (Second) of Trusts, § 297, Comment a— “A third person has notice of a breach of trust not only when he knows of the breach, but also when he should know of it; that is when he knows facts which under the circumstanc- es would lead a reasonably intelligent and diligent person to inquire whether the trustee is a trustee and whether he is committing a breach of trust, and if such inquiry when pursued with reasonable intelligence and dil- igence would give him knowledge or reason to know that the trustee is committing a breach of trust.” (Emphasis added). See also text infra. 13. Because of this conclusion, we need not de- termine certain issues raised by the parties at trial—e.g.. whether individual SFREI trustees should be dismissed as defendants; if SFREI still had to pay for the value of the Lincoln Tower Building even though it was transferred pursuant to a 60-day option-to-purchase and SFREI made no profits on the sale. 62a Appendix E TERRYDALE LIQUIDATING TRUST, Plaintiff, Vv Herbert BARNESS, John F. Bishop, Ed- gar H. Chappell, Charles W. Corbitt, George S. Mann, Brooks Walker, Jr., Louis W. Walker, and Charles M. Wil- liams, individually and as Trustees of, and David R. Bryant as Trustee of, San Francisco Real Estate Investors, and Keith L. Brown, individually, and San Francisco Real Estate Investors, Inc., Defendants. SAN FRANCISCO REAL ESTATE IN- VESTORS, INC., a Delaware corpora- tion, successor in interest to San Fran- cisco Real Estate Investors, a Califor- nia real estate investment trust, Coun- terclaimant and Third-Party Plaintiff, v. TERRYDALE LIQUIDATING TRUST, a New York business trust; Terrydale Re- alty Trust, a Missouri business trust; Oliver R. Grace, Oliver R. Grace, Jr., Emilio G. Collado, William Bolton, and 63a Robert A. Posner, individually and as Trustees of Terrydale Liquidating Trust, Counterdefendants and Third- Party Defendants. No. 82 Civ. 7920 (LBS). United States District Court, S.D. New York. Nov. 19, 1984. Leventritt, Lewittes & Bender, Garden City, N.Y., for plaintiff; Sidney Bender, Garden City, N.Y., of counsel. Skadden, Arps, Slate, Meagher & Flom, New York City; Landels, Ripley & Dia- mond, San Francisco, Cal., for defendants; Douglas M. Kraus, Barry H. Garfinkel, Erskine D. Henderson, New York City, Harvey L. Leiderman, San Francisco, Cal., of counsel. SAND, District Judge. Plaintiff, Terrydale Liquidating Trust : (hereinafter ‘“TLT’’), a New York business trust, brings this action against San Fran- cisco Real Estate Investors, Inc. and the individual trustees of San Francisco Real Estate Investors, seeking to hold them lia- 64a ble as aiders and abettors of an alleged breach of fiduciary duty and as construc- tive trustees of property sold to them in violation of the seller’s fiduciary duties and Declaration of Trust.' Defendants have moved for summary judgment pursuant to F.R.Civ.P. 56. Plaintiff has cross-moved for partial summary judgment pursuant to F.R.Civ.P. 56 on the issue of liability. For the reasons detailed below and ap- plying Missouri law, we conclude that, af- ter extensive discovery, plaintiff is unable to show that defendants had actual knowl- edge of an alleged breach of fiduciary duty. We therefore grant defendants’ mo- tion for summary judgment in part and dismiss the claim that they were aiders and abettors of said breach. Concluding, how- ever, that material questions of fact exist as to whether there was a breach of fiduci- ary obligation or Declaration of Trust and, if so, whether defendants had sufficient notice thereof such that they held the ac- quired assets as constructive trustees for plaintiff’s benefit, we deny defendants’ mo- tion for summary judgment as to plaintiff's equitable claim for restitution. Plaintiff's motion for partial summary judgment is also denied. 65a FACTS Plaintiff is a successor in interest to Ter- rydale Realty Trust (hereinafter ‘“TRT’’), a Missouri real estate investment trust? (hereinafter “REIT’’) which was the entity in existence at the time of the conduct at issue in this case. Defendant SFREI, Inc. was formerly a California REIT, known as San Francisco Real Estate Investors, whose acts (and the acts of its trustees) are relevant to the instant action. San Francis- co Real Estate Investors and its trustees shall be collectively referred to as “SFREI.” The instant case arises out of the actions of TRT trustees taken in response to an unsolicited tender offer for TRT shares.’ On January 9, 1981, BCG Associates (here- inafter BCG”), a New York limited part- nership in which third-party defendants William Bolton, Oliver Grace, Jr., and Rob- ert Posner are general partners, com- menced an unsolicited tender offer for 160,- 000 TRT shares, or approximately 34.7% of its outstanding shares, at a price of $33.50 per share. This offer, if successful, would have given BCG virtual majority ownership of TRT.‘ According to the BCG Offer to 66a Purchase, the offer was made in order to obtain control of TRT and to defeat pro- posed amendments to its Declaration of Trust. The offer was set to expire on February 10, 1981. On January 19, 1981, the TRT trustees met to consider the BCG tender offer.° After discussing both the merits of, and a number of perceived problems with, the BCG offer, the trustees decided to continue to pursue alternatives to the offer. Ac- cording to the minutes of a subsequent meeting of TRT trustees, TRT met or oth- erwise communicated with seven other bid- ders for the purpose of soliciting either a tender offer for all or part of the TRT shares or an offer to purchase the assets of TRT. The trustees also attempted, without success, to persuade BCG to amend its offer to provide for the purchase of all outstanding TRT shares.® Just prior to this meeting of TRT trus- tees, TRT was contacted by George Mann, president of Unicorp Financial Corporation, a Canadian company which owned approxi- mately 40% of SFREI. Mann expressed Unicorp’s interest in making a tender offer for at least some portion of TRT shares.’ 67a After considering the opportunity to bid for TRT shares, Unicerp decided not to enter into the battle for control of TRT. Mann, however, notified SFREI of the opportunity to acquire TRT shares.* Discussions en- sued between representatives of TRT and SFREI. Although SFREI was initially in- terested in acquiring all of the outstanding TRT shares, SFREI eventually proposed instead to purchase approximately 80% in value of TRT’s assets, specifically, four office buildings located in Denver, Colora- do. The TRT trustees met on February 2, 1981 to consider the SFREI proposal, as well as to review various other alternatives to the BCG tender offer. An additional meeting of “independent” trustees, 7.e., those who were not members of the Gram- lich family (see n. 5 supra), was held on February 5; at this meeting, the trustees concluded that the sale of the Denver prop- erties to SFREI was in the best interests of all TRT shareholders. On February 6, the sale to SFREI was unanimously approved by all of the TRT trustees. In addition, the trustees adopted and disclosed a plan to liquidate the trust and to distribute the proceeds of the SFREI sale, along with the 68a remaining trust assets, to TRT sharehold- ers. The trustees also announced that a liquidating dividend of $24 per share was to be distributed on February 23 to all TRT shareholders of record as of February 19. After the trustees’ decision to sell and liquidate was announced, BCG extended its tender offer expiration date to February 19 and adjusted its offering price to $9.50 per share in order to take account of the $24 per share liquidating dividend. BCG ac- quired 80,884 shares pursuant to its tender offer, leaving it with 208,629 shares, or approximately 38% of the outstanding TRT shares. During 1981, BCG continued to purchase TRT shares through a series of open market purchases. By January 1982, BCG had apparently acquired just under 50% of outstanding TRT shares. An addi- tional liquidating dividend of $9.50 was dis- tributed to TRT shareholders on January 12, 1982. On January 28, 1982, the TRT shareholders approved the creation of TLT ® and elected a slate of BCG nominees to serve as trustees of TLT.'® The instant lawsuit ensued. 69a Plaintiff's claims are essentially two-fold. First, plaintiff seeks to hold defendants civilly liable as aiders and abettors; specifi- cally, plaintiff claims that the TRT trustees breached their fiduciary duties by selling and liquidating the trust property for alleg- edly self-interested reasons and at alleg- edly “fire sale’ prices, and that SFREI knowingly and substantially assisted the trustees in this endeavor. Second, plaintiff seeks to hold defendants accountable as constructive trustees; specifically, plaintiff claims that the sale and liquidation, in addi- tion to being tortious, were performed without obtaining the necessary approval allegedly required by the TRT Declaration of Trust, and that SFREI had “notice” of the TRT trustees’ breaches of fiduciary duty and trust. As relief for the above cluims, plaintiff seeks (1) an accounting from SFREI for losses suffered by TRT on the sale of TRT properties, damages, ex- penses and SFREI profits earned from the properties; and (2) a return to the “status quo ante.” '! On February 18, 1983, this Court denied defendants’ motion to dismiss the complaint. On February 28, 1984, this 70a Court denied defendants’ motion for sum- mary judgment without prejudice to renew- al upon completion of further discovery. Discovery was thereafter conducted during which numerous depositions were taken and numerous documents were produced. The instant motions ensued. DISCUSSION A. Applicable Law A federal court exercising diversi- ty jurisdiction must apply the substantive law of the forum in which it sits. rie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). This includes the forum state’s choice of law rules. Klaxon Co. v. Stentor Electric Manufac- turing Co., Inc., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). Since the in- stant case involves the activities of a Mis- souri real estate investment trust whose Declaration of Trust designated Missouri law as applicable, we conclude that Missou- ri law should be applied. See Skolnik v. Rose, 55 N.Y.2d 964, 434 N.E.2d 251, 449 N.Y.S.2d 182 (1982). To the extent that no directly applicable Missouri precedents ex- ist, we shall refer to the law of other jurisdictions for guidance. 7la B. Standard of Review Summary judgment may be granted only when it appears to the court that there is “no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Fed.R. Civ.P. 56(c). A court “cannot try issues of fact but can only determine whether there are issues of fact to be tried.” Katz v. The Goodyear Tire and Rubber Co., 737 F.2d 938, 244 (2d Cir.1984) (quoting Empire Electronics Co. v. United States, 311 F.2d 175, 179 (2d Cir.1962) (emphasis in origi- nal)). In addition, the court must resolve all ambiguities and draw all reasonable in- ferences against the moving party. /d. Thus, where “the party against whom sum- mary judgment is sought comes forth with affidavits or other material .... that gener- ates uncertainty as to the true state of any material fact, the procedural weapon of summary judgment is inappropriate.” /d. (quoting Quinn v. Syracuse Model Neigh- borhood Corp., 613 F.2d 438, 445 (2d Cir. 1980)). Summary judgment is to be grant- ed only where the court “is convinced as a matter of law that the suit can have only one possible outcome.” Reliance Insur- 72a ance Co. ». Barron’s, 442 F.Supp. 1341, 1344 (S.D.N.Y.1977). C. Theories of Liability l. Aider and Abettor Liability [3.4] A person may be liable, as an aider and abettor, for the tortious conduct of another if the person “knows that the other’s conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other so to conduct himself.”’” Restatement (Second) of Torts § 876 (1982). Although Missouri courts have apparently not expressly adopted the Restatement formulation of civil aider and abettor liability,'? this standard has been applied in other jurisdictions in cases in- volving alleged breaches of fiduciary duty, see Marine Midland Bank v. Smith, 482 F.Supp. 1279, 1290 (S.D.N.Y.1979), a/ffad, 636 F.2d 1202 (2d Cir.1980); Gilbert v. Bag- ley, 492 F.Supp. 714, 735 (M.D.N.C.1980), common law fraud, see Keller v. Coyle, 499 F.Supp. 1031, 1033-34 (E.D.Pa.1980), see also Kranzdorf v. Green, 582 F.Supp. 335 (E.D.Pa.1983) (applying similar standard in fraud case), and securities fraud, see Ed- wards & Hanly v. Wells Fargo Securities 73a Clearance Corp., 602 F.2d 478, 483 n. 5 (2d Cir.1979); Landy v. Federal Deposit In- surance Corp., 486 F.2d 139, 162-64 (3d Cir.1973), cert. denied, 416 U.S. 960, 94 S.Ct. 1979, 40 L.Ed.2d 312 (1974). Its use in the instant case is thus considered appro- priate. Under this standard, plaintiff must demonstrate three elements in order to im- pose aider and abettor liability on SFREI: (1) a breach of fiduciary duty by TRT trus- tees; (2) knowledge of this wrongdoing by SFREI; and (3) substantial assistance or encouragement provided by SFREI to the TRT trustees. We will consider these ele- ments in turn. a. Breach of Fiduciary Duty In order to determine whether a breach of fiduciary duty has occurred, this Court must first determine the standard under which the TRT trustees’ conduct should be evaluated. Specifically, we must determine whether the business judgment rule/duty of loyalty analysis—one which is frequent- ly employed in evaluating the acts of corpo- rate directors taken in response to an unso- licited tender offer or takeover bid—is ap- plicable to the trustees of a REIT." Mis- 74a souri courts do not appear to have ad- dressed this issue. For several reasons, this Court con- cludes that the business judgment rule/duty of loyalty analysis should be ap- plied. First, a number of courts have ap- plied the business judgment rule to the activities of REIT trustees. See San Francisco Real Estate Investors v. REIT of America, [1982 Transfer Binder] Fed. Sec.L.Rep. (CCH) 198,874, at 94,555-56 (D.Mass. Nov. 17, 1982) (enactment of by- law allegedly designed to limit concentra- tion of REIT share ownership and block unsolicited tender offers), affd in part and rev'd in part on other grounds, 701 F.2d 1000 (1st Cir.1983); see also Unicorp Financial Corp. v. First Union Real Es- tate Equity and Mortgage Investments, 515 F.Supp. 249, 256 (S.D.Ohio 1981) (apply- ing similar analysis to activities of REIT trustees); cf Hasan v. Clevetrust Realty Investors, 729 F.2d 372 (6th Cir.1984) (ter- mination of shareholder derivative action by REIT special litigation committee). [6] Second, the trustees of a REIT are functionally more similar to corporate di- rectors than to ordinary trustees. See 16A 75a Fletcher Cyclopedia of the Law of Private Corporations § 8249, at 619 (R. Eickhoff rev. ed. 1979). Indeed, whereas ordinary trustees are obligated to preserve and con- servatively invest trust property, the prof- it-making responsibilities of a business trustee inevitably entail the exercise of business judgment similar to that of a cor- porate director. See Plymouth Securities Co. v. Johnson, 335 S.W.2d 142, 149 (Mo. 1960). The functional similarity and shared characteristics of business trusts and cor- porations—centralized management, trans- ferable ownership in the form of shares, continuity of life, separate and distinct le gal existence, a charter-like declaration of rights and obligations, and a profit-making purpose—has been recognized. See Mor- rissey v. Commissioner, 296 U.S. 344, 56 S.Ct. 289, 80 L.Ed. 263 (1935); State Strect Trust Co. v. Hall, 311 Mass. 299, 41 N.E.2d 30, 33 (1942). A REIT in particular is, in all respects other than tax treatment, func- tionally indistinguishable from a corpora- tion. See Stand.Fed.Tax Rep. (CCH) 1 4099F.015, at 46,493 (1982) (a REIT, “in addition to central management, must pos- sess all other necessary attributes that would, except for REIT Code provisions, 76a cause it to be taxed as a corporation’”’). Based on these considerations, it is appro- priate to judge the conduct of REIT trus- tees by the standards generally applied to corporate fiduciaries. Third, the TRT Declaration of Trust is not inconsistent with the application of the business judgment rule/duty of loyalty analysis. The Declaration of Trust gives the trustees discretion substantially similar to that of corporate directors. See TRT Declaration of Trust, Art. III, § 1. In addi- tion, the trust liability provision is similar to the Missouri business judgment rule. Compare TRT Declaration of Trust, Art. Ill, § 15 (“No Trustee shall be individually or personally liable to any Shareholder, oth- er Trustee or any other Person for any errors of judgment er for any action taken or omitted in good faith ... Nothing con- tained in the Declaration, however, shall protect any Trustee against liability to the Trust, or the Shareholders for action taken or omitted by him in bad faith or for his willful misfeasance or reckless disregard of his duties or his own gross negligence.”) with Leggett v. Missouri State Life Insur- ance Co., 342 S.W.2d 833, 851 (Mo.1960) 77a (courts will not interfere with internal management of corporation except in cases of fraud, bad faith, breach of trust, gross mismanagement, or ultra vires acts). And although both the TRT Declaration of Trust and Missouri law indicate that a busi- ness trust is not a corporation, see TRT Declaration of Trust, Art. I, § 3; Manu/fac- turers’ Finance Trust v. Collins, 227 Mo. App. 1120, 58 S.W.2d 1004 (1933) (business trust, unlike corporation, need not acquire license to do business), these sources do not address either the standard to apply in examining the conduct of business trustees or the relevance of REIT status, as op- posed to an ordinary business trust, in this regard. Fourth, the challenged conduct in this case more closely resembles the conduct of corporate directors faced with an unsolic- ited tender offer, rather than a classic case of trustee malfeasance, i.¢., engaging in transactions with the trust on unfair terms and with self-interested motives. Cf Bee- dle v. Campbell, 100 F.2d 798 (8th Cir.) (trustee’s secret purchase of trust property deed constitutes breach of duty), cert. de- nied, 307 U.S. 631, 59 S.Ct. 835, 83 L.Ed. —— 78a 1514 (1939); Kotimsky v. Lubin, 62 F.Supp. 710 (E.D.III.1945) (business trust promoter/director liable for breach of fidu- clary duty based on non-arm’s-length trans- action with trust entered into for personal gain); TRT Declaration of Trust, Art. III, § 3(n) (dealings between trust and trustees governed by Missouri equity law regarding fiduciary obligations). Finally, the practical similarity be- tween the standards governing trustees and corporate directors has been recog- nized. Thus, when either directors or trus- tees engage in self-dealing or enter into a transaction in which they have a conflict of interest, the transaction will be upheld only if the fiduciary involved can demonstrate the fairness and reasonableness of the transaction. See Morrissey ». Curran, 650 F.2d 1267, 1274-75 & n. 7 (2d Cir.1981). To the extent that a stricter fiduciary standard may be appropriate in judging the conduct of business trustees, see 13 Am.Jur.2d Business Trusts § 61, at 424 (1964) (rela- tionship, between business trustees and beneficiaries is comparable to, but more confidential than, relationship between cor- porate directors and corporation); see also 79a McDaniel v. Frisco Employees’ Hospital Association, 510 S.W.2d 752, 756-57 (Mo. Ct.App.1974), we believe that this notion may best be incorporated in our application of the business judgment rule analysis it- self. See pages 1017-1027 infra. We will thus carefully look to determine whether the trustees have acted with disinterest and “scrupulous good faith,” McDaniel, supra, 510 S.W.2d at 758, and if not, whether the challenged sale and liquidation transactions were fair and reasonable to the trust and its shareholders. Although we are unable to find relevant Missouri precedent for judging the acts of directors or business trustees taken in response to an unsolicited takeover bid, the precedents governing the business judgment rule in general provide a helpful starting point. Under Missouri law, al- though courts will typically not interfere with the internal management of a corpora- tion, they will do so where the directors or trustees act in bad faith or engage in fraud, breach of trust, gross mismanage- ment or ultra vires acts. Leggett, supra, 342 S.W.2d at 851; Broski v. Jones, 614 S.W.2d 300, 304 (Mo.Ct.App.1981) (courts 80a will not interfere where directors exercise business judgment fairly and honestly). Indeed, in circumstances involving the dis- position of corporate assets or corporate dissolution, corporate fiduciaries are held to a standard of “scrupulous good faith in the fiduciary role as guardians of the cor- porate welfare.” McDaniel; supra, 510 S.W.2d at 758 (trustees of incorporated nonprofit association); Gieselmann v. Stegeman, 443 S.W.2d 127 (Mo.1969) (di- rectors are in position of “highest trust and confidence” and “utmost good faith” is re- quired in exercise of powers). Consistent with this obligation, such fiduciaries cannot exercise their power in order to satisfy their own self-interest. See Emergency Patient Services, Inc. v. Crisp, 602 S.W.2d 26, 28 (Mo.Ct.App.1980) (directors prohibit- ed from making ‘any self-serving disposi- tion of [corporate assets] against the inter- ests of the corporation’); Johnson v. Duensing, 351 S.W.2d 27 (Mo.1961); ac- cord Norlin Corp. v. Rooney, Pace Inc., 744 F.2d 255, 264-265 (2d Cir.1984); Greer Inv. Co. v. Booth, 62 F.2d 321, 325 (10th Cir.1932) (business trustees must manage assets for benefit of shareholders and not 8la “with an eye to their personal advantage or profits”). Such self-interest is demonstrat- ed when directors or trustees enter into a transaction in order to acquire a benefit not shared by shareholders generally. See Gieselmann, supra; Cheff v. Mathes, 241 Del.Ch. 494, 199 A.2d 548, 554-55 (1964); accord Buffalo Forge Co. v. Ogden Corp., 555 F.Supp. 892, 904 (W.D.N.Y.1983), aff'd, 717 F.2d 757 (2d Cir.), cert. denied, — U.S. ——, 104 S.Ct. 550, 78 L.Ed.2d 724 (1983). When fiduciaries act in further- ance of their own self-interest or for other improper motives, the duty of loyalty im- posed upon fiduciaries requires them to demonstrate the fairness and reasonable- ness of their actions. See Norlin, supra, at 264-265.'5 Retention of control, while often a motive for directors’ opposition to unsolicited takeover bids, is not the only illegitimate purpose which will shift the burden to the directors to justify their acts. See Buffalo Forge, supra, 555 F.Supp. at 904; cf. Gieselmann, supra, 443 S.W.2d at 136. Moreover, this self-interest need not be the sole motive for the fiduciaries’ acts, 82a see Mobil Corp. v. Marathon Oil Co., [1981-1982 Transfer Binder] Fed.Sec.L. Rep. (CCH) 198,375, at 92,285 (S.D.Ohio Dec. 7, 1981), rev'd on other grounds, 669 F.2d 366 (6th Cir.1981); Treadway Compa- nies, Inc. v. Care Corp., 638 F.2d 357, 382-84 (2d Cir.1980), particularly where the alleged basis for self-interest is a readily identifiable and sizable financial interest, as in the instant case.'® Under this stan- dard, even if there are legitimate business reasons for the directors’ acts, the director must demonstrate the fairness and reason- ableness of a challenged transaction if the complaining party shows that the director was in fact motivated by self-interest in his or her conduct. See Mobil, supra; cf. Buf- falo Forge, supra, 555 F.Supp. at 904. Plaintiff advances several bases for a finding of trustee self-interest. These ar- guments will be discussed in turn for pur- poses of determining whether any issues of material fact remain with respect to plain- tiff’s claim. Plaintiff alleges that trustees John Gramlich and J. Russell Gramlich act- ed in a self-interested manner by virtue of 83a the Gramlich family’s ownership interest in, and control of, TMC, the manager of the trust properties.'7 Plaintiff has submitted sufficient evidence to create an issue of fact in this regard. TMC received $529,525 in management fees and commissions for the year ended September 30, 1981 and additional fees through February 5, 1982. Of the 1981 amount, $395,754 was received subsequent to the TRT sale and adoption of its liquidation plan; $283,254 was received in connection with the transfer of trust assets during the 1981 fiscal year. Plain- tiff has produced some evidence to indicate that preservation of the TRT/TMC relation- ship was of concern to the Gramlichs. Al- though this concern was expressed primari- ly with respect to a proposed tender offer by Unicorp, a transaction that was never consummated, it still sheds light on the motives of the trustees at the time of the BCG tender offer.'* Even the sale and liquidation plan eventually adopted by the trustees enabled the Gramlichs to preserve the TMC management relationship for al- most a full year. Indeed, the TRT trustees had apparently discussed with SFRIsI the possibility that TMC would continue to 84a manage the trust properties; it is reason- able to infer that the Gramlichs foresaw or at least believed that this relationship’s continuation was possible.'® And although the amounts received by TMC prior to its termination as trust manager were admit- tedly less than that which it would have received had TRT continued in operation, the trustees may reasonably have foreseen a significantly more rapid termination of the TMC management agreement had BCG succeeded in gaining control of TRT. See Ex. A, SFREI’s Requests for Admissions (BCG Offer to Purchase), at 11. The trus- tees’ decision to sell the trust assets was apparently instrumental in defeating the BCG tender offer and thus avoiding imme- diate termination of the management agreement.”° These circumstances and the reasonable inferences which can be drawn therefrom, combined with the motive or intent-based inquiry which is entailed in determining whether a director or trustee was sufficiently influenced by personal in- terests, create a triable issue of fact. See Schwartz v. Marien, 37 N.Y.2d 487, 335 N.E.2d 334, 373 N.Y.S.2d 122, 128 (1975). While we express no opinion as to the persuasiveness of this evidence of potential 85a self-interested conduct or of defendants’ evidence to the contrary, issues of fact nevertheless remain. Plaintiff further alleges that the Gram- lichs’ decision to oppose the BCG offer and sell TRT assets to SFREI was influenced by a $890,872 loan obligation falling due on February 10, 1981.24 Plaintiff has produc- ed evidence that the Gramlichs had insuffi- cient assets to pay off the loan (or that they would have had to utilize relatively illiquid personal assets in order to dis- charge the loan obligation) and that the sale of TRT shares held by the lender as collateral was subject to SEC Rule 144’s restrictions on the sale either of securities by “affiliates” of the issuer or of ‘‘restrict- ed securities.” There is some evidence to indicate that the ability of the Gramlichs to satisfy the loan obligation may have been of some concern to the bank, see Plaintiff's Ex. 262 (letter from Mid-American Bank to John Gramlich, Sept. 25, 1980); the deposi- tion testimony of John Gramlich does not dispel all doubt as to whether this sizable loan obligation influenced the Gramlichs in their decision to oppose the BCG offer and 86a sell the trust assets. In addition, even if the collateralized shares were actually free of restrictions on their sale, it is presently unclear whether the Gramlichs were aware of this at the time of the challenged trans- actions. The existence of the loan obli- gation thus raises a triable issue of fact regarding the Gramlichs’ alleged self-inter- est. Defendants argue that the Gramlichs’ loan obligation cannot be a ba- sis for a finding of self-interest since the liquidating dividends paid by TRT were dis- tributed equally to all TRT shareholders. Defendants contend that many TRT share- holders may have had outstanding loan ob- ligations and that the trustees and non- trustee shareholders were thus similarly benefitted by the decision to sell and liqui- date. It is true that a finding of self-inter- est is not warranted where the allegedly special benefits are available to all share- holders. See Buffalo Forge, supra, 555 F.Supp. at 904. Here, however, defendants have failed to produce any evidence that other shareholders in fact had obligations of even remotely similar size and timing which could be satisfied by the payment of 87a a liquidating dividend, or that the Gram- lichs knew that this was indeed the case. Cf. id. (directors’ approval of merger not based on self-interest in obtaining tax bene- fits where evidence showed that directors knew many shareholders would benefit from tax-free nature of transaction). In- deed, there is little reason to even presume that TRT shareholders were similarly sad- dled with sizable and imminent personal financial obligations, unlike the more gen- erally applicable capital stock tax benefit in Buffalo Forge. Defendants’ argument that TRT share dividends received by the Gramlichs would have been sufficient to pay the interest expense on the loan is also not dispositive. Even if defendants’ argu- ment is numerically accurate, the essence of plaintiff's claim of self-interest is based on the Gramlichs’ desire to generate funds sufficient to liquidate the loan and thus avoid paying interest expense altogether. In short, we cannot presently conclude that the Gramlichs’ loan obligation played no role in their decision to sell TRT assets and liquidate the trust. Plaintiff also alleges that J. Harlan Stamper was motivated by self-in- 88a terest in his decision-making based on his membership in the law firm of Morris, Lar- son, King, Stamper & Bold, counsel to TRT. Plaintiff argues that Stamper’s deci- sion to oppose the BCG tender offer and to approve the sale and liquidation plan were tainted by the fact that his firm stood to preserve, at least temporarily, its relation- ship due to the former decision and receive substantial legal fees with respect to the latter. Defendants argue that these facts, as a matter of law, do not constitute self-in- terest. This Court has previously held, in related litigation, that the above facts were sufficient to demonstrate a “financial stake . in the transaction” which prevented the other disinterested trustees’ knowledge from being attributed to the trust in order to avoid a finding of deception. See Bol- ton v. Gramlich, 540 F.Supp. 822, 838-39 (S.D.N.Y.1982) (quoting Maldonado 1. Flynn, 597 F.2d 789, 793 (2d Cir.1979)).*? It is far from clear that this finding ren- ders Stamper self-interested in the instant case a fortiori, given the differing pur- poses for which the determination of self- interest is being made. A director or trus- tee is not disloyal merely because he or she has an indirect financial interest in a partic- 89a ular transaction; disloyalty or lack of good faith is demonstrated by evidence that the fiduciary was improperly influenced by per- sonal considerations or benefits not avail- able to other shareholders generally. See Crouse-Hinds Co. v. InterNorth, Inc., 634 F.2d 690, 702-03 (2d Cir.1980); pages 1018- 1019 supra. Although the issue is a close one, we are presently unable to determine the extent to which this “financial stake” in fact influenced Stamper in his decision to oppose the BCG offer. Although the record reveals that Stamper appears to have given the transaction fairly thorough and objective consideration, the extent of financial benefit accruing to his firm as a result of the opposition to the BCG bid and the sale of assets to SFREI,™ as well as his own recognition of potential self-interest, see Plaintiff's Ex. 14A, p. 86, create an issue of fact with respect to the possibility of self-interested conduct.*! Finally, plaintiff claims that the independence and financial disinterested- ness of trustees Stamper (to the extent he was not otherwise self-interested), Murphy, and O'Flaherty was overcome by the Gram- lichs’ domination and control of TRT. In 90a order to sustain a claim of domination and control, a party must allege facts ‘“mani- festing ‘a direction of corporate conduct in such a way as to comport with the wishes or interests of the corporation (or persons) doing the controlling.’" Aronson v. Lew- is, 473 A.2d 805, 812 (Del.1984) (quoting Kaplan v. Centex Corp., 284 A.2d 119, 123 (Del.Ch.1971)); cf McFarland v. Memorex Corp., [1979-1980 Transfer Binder] Fed. Sec.L.Rep. (CCH) 1 97,368, at 97,462 (N.D. Cal. May 14, 1980) (“{C]ontrol ... means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract or otherwise.”) (quoting 17 C.F.R. § 230.405(f) (1984)). While mere stock ownership, without more, does not constitute domination and control, see Aronson, supra, 473 A.2d at 815-17 (directors who owned 47% of stock and who personally selected other directors did not dominate and control), plaintiff has produc- ed sufficient evidence to create an issue of fact in this regard. Plaintiff has produced evidence that other trustees were quite concerned with the goals and interests of 9la the Gramlichs, that they expressed reserva- tions about the sale of TRT assets, that they were unaware of certain significant aspects of the sale to SFREI, and that these trustees believed that it was neces- sary to conduct (and did conduct, on Febru- ary 5, 1981) a meeting in the Gramlichs' absence in order to consider the SFREI proposal. In addition, plaintiff notes that even at this meeting of “independent” trus- tees, the Gramlichs’ attorney was present to represent their interests. In addition, plaintiff has produced evidence that this alleged dominating influence of the Gram- lichs over trust management was simply a continuation of their prior influence over the trustees. See Plaintiff's Ex. 14A. This evidence is by no means. overwhelming, particularly in light of the fairly thorough and ubjective consideration which the non- Gramlich trustees appear to have given the SFREI transaction. The line between mere influence over other trustees and domina- tion of trust management is not an easy one to demarcate. But in view of the factors discussed above, the determination of whether this line was crossed must be made at trial. See Aronson, supra, 473 92a A.2d at 815-16; cf Treadway, supra, 638 F.2d at 383-84 (appeal of final judgment) (no claim nor any evidence of domination and control by self-interested director). Because the present record suggests potential self-interested conduct by a majority of the TRT trustees, cf Treadway, supra, 638 F.2d at 383,2> sum- mary judgment cannot be granted based on the presumption of the business judgment rule. The Missouri state law standards of good faith and disinterestedness are fairly rigorous ones, and several bases for self-in- terest and disloyalty have been asserted. This Court’s ability to resolve this issue would be enhanced by a factual inquiry into the extent to which the trustees’ al- leged financial interests and domination ac- tually influenced their decisions to oppose the BCG tender offer, sell the trust assets to SFREI, and liquidate the trust. Assuming that plaintiff succeeds in demonstrating self-interested conduct by the trustees, the trustees must then demon- strate that the challenged transactions were fair and reasonable to TRT and its shareholders. There appears to be consid- 93a erable variation among courts which have applied this general standard in the context of takeover battles, including a require- ment that a compelling business purpose be demonstrated, see Klaus v. Hi-Shear Corp., 528 F.2d 225, 233-34 (9th Cir.1975); a careful inquiry into the substantive fair- ness of the transaction, see Mobil, supra, (1981-1982 Transfer Binder] Fed.Sec.L. Rep. (CCH) at 92,274, 92,285; a search to determine the “independent legitimacy” of the transaction in addition to the alleged business purposes for opposing the tender offer, see Norlin, supra, at 265-267; anda search for a proper or rational business purpose for the transaction. See Johnson v. Trueblood, 629 F.2d 287, 292-93 (3d Cir. 1980), cert. denied, 450 U.S. 999, 101 S.Ct. 1704, 68 L.Ed.2d 200 (1981); see also Treadway, supra, 638 F.2d at 381. The instant case is also somewhat complicated in that the opposition to the tender offer consisted of the sale and liquidation of the target, rather than the mere securing of a higher bidder for the target’s stock. While this fact by no means renders the transac- tion more suspect or inherently unfair, it requires this Court to consider a number of 94a interrelated and potentially inconsistent factors in determining the fairness and rea- sonableness of the transactions at issue. In so doing, we will consider both the sub- stantive fairness of the transactions as well as the purposes for which they were con- summated.”6 Plaintiff’s allegation of unfairness rests primarily on the purported “fire sale’ prices at which the TRT assets were sold. Plaintiff has submitted evidence that the properties sold to SFREI had been reap- praised, four days prior to the sale, at amounts far in excess of both the sales price and prior appraisals of the proper- ty;*7 that changes in real estate market conditions rendered the 1980 appraisals of TRT assets obsolete; 78 that an unexpired right of first refusal on the most valuable building significantly reduced the amount that TRT could obtain for its sale at the time of the BCG offer; and that the trus- tees could foresee significant increases in the value of TRT assets at the time the property was sold. Plaintiff also suggests alternative courses of action which, in its view, would have been far more reasonable 95a and profitable for TRT and its sharehold- ers.”9 Defendants offer an abundance of rea- sons in justification of the trustees’ acts. Primary among them are: (1) the potential loss of TRT’s favorable tax status as a REIT had the BCG tender offer been suc- cessful; (2) the potential loss of TRT's share listing on NASDAQ (and thus a dle- cline in marketability and value); (3) the shareholders’ loss of the benefit of report- ing and disclosure provisions of the Securi- ties and Exchange Act; (4) the favorable comparison of the liquidating dividends paid to all TRT shareholders, totalling $33.50, with either the BCG tender offer of $33.50 for approximately 34% of the TRT shares, or any other offer for TRT shares or assets; (5) the relative ineffectiveness of trustee passivity, i.¢c., merely recommend- ing that shareholders not tender their shares to BCG;*' and (6) a fervent objec- tion to plaintiff's method of valuing TRT’s assets as of February, 1981." We do not believe the issues raised by the parties can properly be re- solved at this stage of the litigation. Of primary concern is the dispute surrounding 96a the value of TRT assets both at the time of sale and for the then-foreseeable future. While perhaps it is not necessary to deter- mine the precise value of TRT assets as of February 6, 1981 in order to properly re- solve the fairness and reasonableness is- sue, cf Mobil, supra, [1981-1982 Transfer Binder] Fed.Sec.L.Rep. (CCH) at 92,274 (de- nial of preliminary injunction), plaintiff has produced evidence suggesting that the sale of TRT assets occurred at a price and time which rendered the transaction seriously deficient from an economic viewpoint. Cf. Bolton v. Gramlich, supra, 540 F.Supp. at 840 n. 25. Resolution of the factual dis- putes surrounding the value of TRT assets is of significant consequence to plaintiff's claim and cannot properly be decided at this time.™ Plaintiff also raises factual questions with respect to the significance of other factors surrounding the BCG tender offer. The effect of TRT’s loss of REIT status is unclear, in light of the decreased earnings and anticipated losses and increased ex- penses of TRT both before and after the sale, see, eg., Plaintiff's Ex. 2, 291; 97a see also Plaintiff’s Reply, at 30 (noting five-year renewal of leases for 40% of Lincoln Tower Building space at rates well below fair rental value), the trustees’ own uncertainty regarding the significance of REIT status, see Plaintiff's Ex. 14A, and the fact that other tender offers were con- sidered which involved the same potential for loss of REIT status, see Plaintiff’s Ex. 486.4 In addition, the fact that the poten- tial consequences of a BCG tender offer were thoroughly considered by the trustees is not dispositive of our inquiry; if the presumption of good faith and disinterest- edness is overcome, our task will be to evaluate not only the purposes for which the trustees acted but the fairness of the transactions themselves. See Norlin, su- pra, at 267 n. 13; Mobil, supra.* We recognize the reluctance of courts to intrude into the decision-making processes of business fiduciaries faced with develop- ments of major import which demand fairly immediate response. Nevertheless, several considerations weigh against resolution of the breach of fiduciary duty issue at this preliminary stage. The disparity in price 98a and fair market value asserted by plaintiff distinguishes this case from others in which directors’ decisions in response to tender offers were found to be fair and reasonable. Cf Buffalo Forge, supra, 555 F.Supp. at 905 (sale of treasury stock); Mobil, supra, [1981-1982 Transfer Binder] Fed.Sec.L.Rep. (CCH) at 92,274 (granting of stock and asset purchase options). The extraordinary nature of the instant trans- actions also supports a determination made only after the aforementioned factual is- sues are resolved. Cf Joseph E. Seagram & Sons, Inc. v. Abrams, 510 F.Supp. 860 (S.D.N.Y.1981) (issuance of temporary re- straining order enjoining directors from liq- uidating company in response to unsolicited tender offer). Finally, we recognize that the principal cases in which courts have upheld directors’ responses to hostile take- over bids have been decided in circumstanc- es where findings of fact were first made.” While defendants may ultimately succeed in demonstrating the propriety of the TRT trustees’ conduct, we are presently unwill- ing to conclude that Missouri courts would refuse, as a matter of law, to hold the trustees liable under the circumstances of the instant case. 99a b. Knowledge In order to sustain a claim of aiding and abetting, plaintiff must demon- strate evidence of SFREI’s knowledge of wrongdoing by the TRT trustees. Actual knowledge of a breach of duty is required; mere suspicion or even recklessness as to the existence of a breach is insufficient. See Marine Midland Bank, supra, 482 F.Supp. at 1290 (breach of fiduciary duty); Kransdorf, supra, 582 F.Supp. at 337-38 (fraud and mismanagement); Restatement (Second) of Torts § 876, Comment on Clause (b); cf Harmsen v. Smith, 693 F.2d 932, 943 (9th Cir.1982) (securities law), cert. denied, —- U.S. ——, 104 S.Ct. 89, 78 L.Ed.2d 97 (1983); Edwards & Hanly, su- pra, 602 F.2d at 485 (same): The burden of demonstrating actual knowledge, although not insurmountable, is nevertheless a heavy one. Especially where the alleged aider and abettor owes no fiduciary duty to, or has no confidential relationship with, the injured party, cf Armstrong v. McA/- pin, 699 F.2d 79, 91 (2d Cir.1983); Wood- ward v. Metro Bank of Dallas, 522 F.2d 84, 97 (5th Cir.1975); A.L. Federman & Co. v. Greenberg, 405 F.Supp. 1332, 1336- 100a 37 (S.D.N.Y.1975), liability cannot be im- posed absent a showing that the defend- ants had actual knowledge of tortious con- duct by the primary wrongdoer. In this connection, it is [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385002_0108%3A2. Public record. Not legal advice.