# Appendix — Viacom International, Inc. v. Icahn

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 1992
- **Citation:** 502 U.S. 1122

## Text

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IN THE DEC 23 199%
Supreme Court of the nit OE ncn

OctToBeR TERM, 1991

VIACOM INTERNATIONAL, INC.,
Petitioner,
VS.
CARL C. ICAHN, et al.,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT

APPENDIX

MICHAEL E. TIGAR*
727 East 26th Street
Austin, Texas 78705
(512) 471-6319

STEPHEN LOWEY

Neit L. SELINGER

Lowery DANNENBERG BEMPORAD
& SELINGER, P.C.

747 Third Avenue

New York, New York 10017

(212) 759-1504

EDWARD LABATON
New York, New York

JOHN MacE
New York, New York

* Counsel of Record

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TABLE OF CONTENTS

Opinion of the United States Court of Appeals for
The Second Circuit, dated October 6, 1991....

Transcript of Hearing before Judge Ward, dated
I IEEE ON a et han pee ey eee sn

Order Denying Defendants’ Motion to Dismiss
Amended Complaint, dated September 29,
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Racketeer Influenced and Corrupt Organizations
Act

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UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT

=e 4

No. 1534—August Term, 1991
(Argued May 21, 1991 Decided October 9, 1991)
Docket No. 91-7174

2

VIACOM INTERNATIONAL INC.,

Plaintiff-Appellant,
—Vv.—

CARL C. ICAHN; ICAHN HOLDING; ICAHN CAPITAL
CORP.; HERON INVESTORS PLAN INC.; ACF CORPO-
RATION, INC.; UNICORN ASSOCIATES CORPORATION;
GNU CoRP.; EXCALIBER PARTNERS; HEALTH
INVESTORS LIMITED PARTNERSHIP; LONGVIEW
INVESTORS LIMITED PARTNERSHIP; HARMONIOUS
ASSOCIATES LIMITED PARTNERSHIP; STORK ASSO-
CIATES LIMITED PARTNERSHIP,

Defendants -Third-Party-
Plaintiffs-Appellees,

RALPH M. BARUCH; TERRENCE A. ELKES; KENNETH F.
GORMAN; JOHN W. GODDARD; LEO CHERNE; JOSEPH
F. CONDON; THEODORE C. JACKSON; ALAN R. JOHN-
SON; PAUL A. NORTON; HARRY M. PLOTKIN; NANCE

C. REYNOLDS; JOHN F. WHITE,
Third-Party-

Defendants-Appellees.

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Before:

KEARSE, MAHONEY, and SNEED,*
Circuit Judges.

oe

Appellant, Viacom International, Inc., filed a RICO suit
against Carl Icahn and his associates alleging violations
of the Hobbs Act and the securities laws. The United
States District Court for the Southern District of New
York, Robert P. Patterson, Jr., J., granted appellees’
motion for summary judgment and dismissed appellant’s
case. The Court of Appeals, Joseph T. Sneed, J., affirmed
the grant of summary judgment and concluded that
Viacom was not injured by Icahn’s activities.

—e

MICHAEL E. TIGAR, Austin, Texas, (Stephen
Lowey, Neil J. Selinger, John Mage, New
York, New York, Lowey Dannenberg
Bemporad & Selinger, P.C., Goodkind,
Labaton & Rudoff, Wolf Popper Ross
Wolf & Jones, New York, New York, of
counsel), for Plaintiff-Appellant.

DENNIS J. BLOCK, New York, New York,
(Stephen A. Radin, Beth J. Jacobwitz,
New York, New York, Weil, Gotshal &
Manges, New York, New York, of coun-
sel), for Defendants-Appellees.

—

* Honorable Joseph T. Sneed, Senior Curcuit Judge, United States Court
of Appeals for the Ninth Circuit, sitting by designation.

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SNEED, Circuit Judge:

Plaintiff, Viacom International Inc. (Viacom), appeals
from the district court’s grant of summary judgment dis-
missing the plaintiff’s case against defendants Carl Icahn
(Icahn) and various corporations and entities controlled
by Icahn. Viacom claims that Icahn committed extortion,
in violation of the Hobbs Act, 18 U.S.C. § 1951 (1988),
when Viacom was forced to repurchase Icahn’s Viacom
stock at a price that was significantly higher than current
per share price on the open exchange. The district court
concluded that the repurchase of the stock, commonly
known as “greenmail,”’ did not violate the Hobbs Act. We
affirm.

I.
FACTS AND PROCEEDINGS BELOW

As of May 1, 1986, Cari Icahn heid slightly less than
five percent of Viacom’s stock. During this time, Icahn
met with Joseph R. Perella, Viacom’s investment banker
at First Boston Corporation. Icahn indicated that he
wanted Viacom to repurchase his shares. Perella com-
municated this information to Viacom.

On May 5, 1986, Icahn bought one million shares of
Viacom stock from Ivan Boesky for $63 a share. Because
Icahn now owned more than five percent of the com-
pany’s stock, he had until May 15, 1986, to file form 13D
with the Securities Exchange Commission (SEC), reveal-
ing his share ownership and detailing his intentions.
Before the form had to be filed, Icahn further increased
his holdings when he bought 1.5 million shares of Viacom
stock for $70 a share from JMB Realty Corp. of Chicago.

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On May 15, 1986, Icahn filed his form 13D with the
SEC. In it, he stated that he owned almost seventeen per-
cent of Viacom’s stock. He said he was prepared to buy
all of Viacom’s stock for $75 per share. If no deal could
be reached, Icahn indicated that he would continue to
explore strategies for obtaining control of Viacom. He
also suggested that he might dispose of his shares for
“cash or otherwise.”

During this time, Icahn also went public with his share
holdings. There is evidence that the widespread percep-
tion of an imminent takeover adversely affected Viacom’s
business operations. Apparently, companies and indi-
viduals were reluctant to engage in certain contractual
relations with Viacom because of the possibility that the
company would soon be sold or broken up.

On May 21, 1986, Viacom repurchased all of Icahn’s
shares. Icahn received cash (equivalent to $62 per share),
warlrants to purchase 2.5 million shares of common stock,
and ten million dollars worth of free advertising.!' When
the whole deal is added together, Icahn received approx-
imately $79.50 for each share of Viacom stock. The actual
share price on the open exchange on May 22 was $62.
Icahn received a premium over that market price which
totalled over sixty million dollars. As part of this deal,
Icahn agreed not to purchase Viacom stock or seek control
of the company for eleven years. Ten months later, Via-
com was acquired by National Amusement, Inc., for $111
a share.

1 The practice of forcing a company to repurchase a stockholder's stock
al a premium above the current market price is commonly known as
“greenmail."’ This is a practice commonly used by corporate raiders.
They purchase a large chunk of stock and threaten to engage in a hostile
takeover unless the company repurchases its shares for a premium.

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On May 28, 1986, Viacom filed this suit alleging that
Icahn and his affiliates had violated the Racketeer Influ-
enced and Corrupt Organizations Act (RICO), 18 U.S.C.
§ 1962. The amended complaint filed on October 11,
1988, alleges that Icahn committed the requisite predicate
acts required under RICO by engaging in extortion in vio-
lation of the Hobbs Act, 18 U.S.C. § 1951, and by com-
Mitting securities fraud in violation of the Securities
Exchange Act of 1934, 15 U.S.C. § 78j(b) and rule
10b-5.

Specifically, Viacom alleges that Icahn’s greenmail deal
with Viacom constituted extortion. Viacom further alleges
that Icahn has engaged in a pattern of extortion. Viacom
points to other greenmail deals between Icahn and com-
panies like B.F. Goodrich, Owens Illinois, and American
Can Company. Viacom also alleges that Icahn violated the
securities laws when he purchased stock in Saxon Indus-
tries (Saxon) and Hammermill Paper Company (Ham-
mermill) and resold the stock back to the companies.

On September 14, 1990, in a published decision, Judge
Robert P. Patterson granted defendants’ motion for sum-
mary judgment. The court held that Icahn “did not obtain
property from plaintiff to which they had no lawful claim
and therefore did not commit extortion.”’ Viacom Int'l,
Inc. v. Icahn, 747 F. Supp. 205, 213-14 (S.D.N.Y. 1990).
The court also dismissed plaintiff’s securities claims
because Viacom did not have standing to raise them. /d. at
210. Having dismissed the alleged predicate acts under
RICO, the court dismissed the entire case. /d. at 214.

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II.

JURISDICTION AND STANDARD OF REVIEW

This court has jurisdiction under 28 U.S.C. § 1291
(1988). The court reviews a district court’s grant of sum-
mary judgment de novo. See Bryant v. Maffucci, 923 F.2d
979, 982 (2d Cir. 1991). The reviewing court applies the
same standard of review as that applied by the district
court. See Burtnieks v. City of New York, 716 F.2d 982,
985 (2d Cir. 1983). Under rule 56(c), summary judgment
should be granted if there is no genuine issue of material
fact and the moving party is entitled to judgment as a mat-
ter of law. See Bryant, 923 F.2d at 982. We view the
record and the evidence in the light most favorable to the
nonmoving party. See id.

III.
DISCUSSION

Without addressing whether Icahn may have violated
the Hobbs Act or the securities laws, we affirm the district
court’s holding dismissing this case because we conclude
that Viacom was not damaged by the transaction. While
the district court’s holding was based on other grounds,
both parties argued the damages question in the court
below and discussed it in the briefs filed with this court.
We can clearly affirm on this ground. See Colautti v.
Franklin, 439 U.S. 379, 397 n.16 (1979) (noting that
“{aj]ppellees, as the prevailing parties, may of course
assert any ground in support of that judgment ‘whether or
not that ground was relied upon or even considered by the
trial court’ ’’ (quoting Dandridge v. Williams, 397 U.S.
471, 475 n.6 (1970))); see also AVC Nederland B.V. v.
Atrium Investment Partnership, 740 F.2d 148, 152 (2d Cir.

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1984) (same). By affirming the judgment of the district
court on this ground, we are selecting what to us is the
most direct route to that end.

Viacom effectively paid Icahn $79.50 for each of his
three and half million shares. At the time of the deal, the
stock was trading for $62 a share on the open exchange.
To determine whether Viacom was injured, we must
decide whether the $79.50 Viacom paid to Icahn exceeded
the fair value of the stock.

Viacom points to the open market value and argues that
$62 represented the fair value of the stock. Relying on the
efficient capital market hypothesis, Viacom bases its dam-
ages on the seventeen dollar premium it was forced to pay
for each share of stock. The efficient capital market the-
ory holds that “because of the large number of skilled
profit-motivated investors continuously analyzing all pub-
licly availabie information concerning liquid publicly
traded securities, the prices of those securities in the mar-
ket fairly reflects the value of the securities.’’ Joint
Appendix at A495-96. Market price is considered “the
most reliable indicator of the value of [Viacom’s] shares”’
under this theory. /d. at A496.

We do not believe that market price is the only factor to
be considered when determining the value of stock ina
Situation such as that before us. The efficient capital mar-
ket theory clearly is not the sole means of determining
value. See Paramount Communications Inc. v. Time Inc.,
[1989 Transfer Binder] Fed. Sec. L. Rep. (CCH) § 94,514,
at 93,277 (Del. Ch. Ct. July 14, 1989) (noting that the the-
ory of a single, efficient capital market has not been given
“the dignity of a sacred text’”’ and concluding that direc-
tors, when valuating a stock buy-out, may operate on the
theory that the stock market valuation is wrong). Deter-

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mination of a stock’s fair value is dependent on several
factors. Market price is one of those factors but it is not
the determining one. See Multitex Corp. of Am. v. Dick-
inson, 683 F.2d 1325, 1330 n.4 (11th Cir. 1982) (con-
cluding that market price is not the sole criterion for
determining the “fair value”’ of the stock). The court must
also consider a host of other factors including net asset
value and investment value. See id. at 1328-29; see also
Hunter v. Mitek Indus., 721 F. Supp. 1102, 1106 (E.D.
Mo. 1989) (holding that the court must consider all rele-
vant factors, including asset value, earnings, and every
relevant fact and circumstance when determining the fair
value of the stock).

In Litton Indus. v. Lehman Bros. Kuhn Loeb Inc., 709 F.
Supp. 438 (S.D.N.Y. 1989), the court said:

“(CJourts must take into consideration all factors and
elements which reasonably might enter into the fix-
ing of value. Thus, market value, asset value, divi-
dends, earning prospects, the nature of the enterprise
and any other facts which were known or could be
ascertained. . . and which throw any light on future
prospects. . .mustbeconsidered....” |

Id. at 447 (quoting Tri-Continental Corp. v. Battye, 74
A.2d 71, 72 (Del. Sup. 1950)). Moreover, directors may
violate their fiduciary duty if they accept merger pro-
posals based solely on market price without considering
other factors that affect the company’s inherent value. See
Smith v. Van Gorkom, 488 A.2d 858, 875-76 (Del. 1985).
Finally, each case turns on its own particular facts. No
specific rules can be culled from the caselaw. See Multi-
tex, 683 F.2d at 1329.

However, it can be said that the intensity of the pur-
chaser’s desire to acquire a large block of stock reason-

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ably may exceed its price per share in the open market.
See Amsellem v. Shopwell, Inc., No. 5683, 1979 WL 2704
(Del. Ch. Sept. 6, 1979) (noting that a large block of stock
may carry a higher price than the sum of its individual
shares because of the control factor the block contains).
A holder of such a block of stock is entitled to test the
intensity of that desire by declining to sell at the price per
share in the open market. So long as the parties search for
that price at which the purchaser’s value in use of the
stock just exceeds that of the seller, the price so deter-
mined by that process does not exceed the relevant mar-
ket price of that block. Unique goods sometimes fetch
unique prices fairly and legitimately.

The specitic facts of this case persuade us that the price
Icahn was paid for his tock was arrived at in this manner
and that it was worth $79.50 a share at the time Icahn sold
his stock to the company. Several days before this deal
was reached, Icahn had offered to buy all the company’s
stock at $75 a share. Viacom’s directors met and reviewed
two reports, which had been specially prepared by two
investment firms, that evaluated Icahn’s offer. The report
prepared by First Boston valued Viacom’s stock at $90 to
$100 a share. The second report from Donaldson, Lufkin
& Jenrette, Inc. valued the stock at $88 to $100 per share.
Joint Appendix at A854-55. The board of directors
rejected Icahn’s offer as “inadequate and inappropriate.”’
Id. at A874. Various directors testified that they believed
the fair value of Viacom’s stock ranged anywhere from
$80 to $100. See id. at A578-79, A60001, A620. One
director acknowledged that market price was “among the
least reliable indicators”’ of the value of Viacom’s stock.
Id. at 562.

Proof that these estimates were not wholly wrong con-
sists Of the fact that four months after Icahn sold his

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shares to Viacom, a management led group offered to pur-
chase the company for $81 per share. After a series of
bids and counteroffers, National Amusements purchased
the company for $111 per share seven months later.

These facts convince us that Viacom was not injured by
the transaction it entered with Icahn. The directors them-
selves determined that the stock was worth more than $75
per share and refused to accept an offer at that price.
Pointing to their legal obligation to examine all the rele-
vant factors, they concluded that the stock was worth at
least $80 per share. Some of those same directors later
offered to buy the stock for $81 per share. The company
cannot now complain that it was somehow injured when
it paid less for the stock than it thought it was worth.
They can only show an injury by insisting that the stock
can only be valued at its price per share in the open mar-
ket. We have rejected this measure in this case. We are
convinced that the fair value of Viacom’s stock exceeded
$79.50 a share and that the company was not injured
when it repurchased its stock from Icahn at that price.

While we recognize that the questions are different, it
is worth noting that the district court implicitly recog-
nized that Viacom was not injured when it concluded that
Icahn obtained his deal through “hard bargaining”’ and did
not receive a benefit to which he was not otherwise enti-
tled by law. See Viacom Int'l, 747 F. Supp. at 213.

For the foregoing reasons, the judgment of the district
court is AFFIRMED.

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MAHONEY, Circuit Judge, concurring in the judgment:

I agree with the majority that the judgment of the dis-
trict court should be affirmed. I would not premise that
affirmance, however, upon the proposition that there is no
genuine issue of material fact posed by my colleagues’
conclusion that “Viacom was not damaged by the trans-
action” with Icahn on May 21, 1986. .

It is undisputed that the market price at which Viacom's
common stock traded publicly on that date, when Viacom
paid $79.50 per share for Icahn’s holdings, was $62.00
per share. It may well be, as the majority concludes, that
the real value of the stock on that date nonetheless
exceeded $79.50 per share, and that the evidence mar-
shalled by the majority in support of that conclusion
should be regarded as persuasive. In my view, however, it
falls short of establishing that proposition as a matter of
law, which Fed. R. Civ. P. 56(c) requires for an award of
summary judgment, particularly since “fairness of con-
sideration is generally a question of fact.” Klein v.
Tabatchnick, 610 F.2d 1043, 1047 (2d Cir. 1979) (col-
lecting cases).

I nonetheless agree that the summary judgment granted
by the district court to defendants-appellees should be
affirmed, because in my view plaintiffs-appellants have
established no basis for RICO liability. Plaintiffs-appel-
lants pled two predicate acts of securities fraud in viola-
tion of section 10(b) of the Securities Exchange Act of
1934, 15 U.S.C. § 78) (1988), and rule 10b-5 thereunder,
17 C.F.R. § 240.10b-5 (1991); and a series of alleged vio-
lations of the Hobbs Act, 18 U.S.C. § 1951 (1988). Rely-
ing, inter alia, upon rulings in the Fourth and Eighth
Circuits, see /nternational Data Bank, Ltd. v. Zepkin, 812
F.2d 149, 151-54 (4th Cir. 1987); Brannan v. Eisenstein,
804 F.2d 1041, 1045-46 (8th Cir. 1986), the district court

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ruled that Viacom had no standing to assert the securities
fraud claims under RICO because it was not a purchaser
or seller of the securities in question. See Viacom Int'l
Inc. v. Icahn, 747 F. Supp. 205, 210 (S.D.N.Y. 1990). The
Third, Ninth, and Eleventh Circuits take the view, on the
contrary, that a RICO plaintiff has standing if “injured in
his business or property by reason of” a securities fraud
within the meaning of 18 U.S.C. § 1964(c) (1988),
whether or not a purchaser or seller. See Ford Motor Co.
v. Summit Motor Prods., Inc., 930 F.2d 277, 285-86 (3d
Cir. 1991); Pelletier v. Zweifel, 921 F.2d 1465, 1510 n.80
(1ith Cir. 1991); Securities Investor Protection Corp. v.
Vigman, 908 F.2d 1461, 1465-67 (9th Cir. 1990), cert.
granted on this question, 111 S. Ct. 1618 (1991).

In any event, the securities frafft\predicates in the
amended complaint herein are alleged to have been per-
petrated by icahn against two entirely unrelated compa-
nies in 1979 and 1980. Viacom was neither a purchaser or
seller in those transactions, and suffered no injury to its
business or property as a result of them. Further, to the
extent that Viacom asserts new theories of securities fraud
on appeal, I would not entertain securities fraud claims
that were not properly presented below. See, e.g., In re
Cooper/T. Smith (Abshire v. Gnots-Reserve, Inc.), 929
F.2d 1073, 1078 (Sth Cir. 1991), petition for cert. filed, 60
U.S.L.W. 3109 (U.S. July 29, 1991) (No. 91-188);
Schwimmer v. Sony Corp. of Am., 637 F.2d 41, 49 (2d Cir.
1980); McPhail v. Municipality of Culebra, 598 F.2d 603,
607 (1st Cir. 1979); Capps v. Humble Oil & Ref. Co., 536
F.2d 80, 82 (Sth Cir. 1976). Finally, I am in essential
agreement with the district court’s analysis that Viacom’s
allegations of Hobbs Act violations are inadequate to state
a claim. See 747 F. Supp. at 210-14. I accordingly join in
the judgment of affirmance.

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Hobbs Act, 18 U.S.C.
§ 1951. Interference with commerce by threats or violence

(a) Whoever in any way or degree obstructs, delays, or affects
commerce or the movement of any article or commodity in com-
merce, by robbery or extortion or attempts or conspires so to
do, at commits or threatens physical violence to any person or
property in furtherance of a plan or purpose to do anything in
violation of this section shall be fined not more than $10,000
or imprisoned not more than twenty years, or both.

(b) As used in this section —

(1) The term “robbery” means the unlawful taking
or obtaining of personal property from the person or
in the presence of another, against his will, by means
of actual or threatened force, or violence, or fear of
injury, immediate or future, to his person or proper-
ty, or property in his custody or possession, or.the per-
son or property of a relative or member of his family
or of anyone in his company at the time of the taking
or obtaining.

(2) The term “extortion” means the obtaining of
property from another, with his consent, induced by
wrongful use of actual or threatened force, violence,
or fear, or under color of official right.

(3) The term “commerce” means commerce within
the District of Columbia, or any Territory or Posses-
sion of the United States; all commerce between any
point in a State, Territory, Possession, or the District
of Columbia and any point outside thereof; all com-
merce between points within the same State through
any place outside such State; and all other commerce
over which the United States has jurisdiction.

(c) This section shall not be consti ued to repeal, modify or
affect section 17 of Title 15, sections 52, 101-115, 151-166 of Title
29 or sections 151-188 of Title 45.

(June 25, 1948, c. 645, 62 Stat. 793.)

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Racketeer Influenced and Corrupt Organizations Act
§ 1961. Definitions
As used in this chapter —

(1) “racketeering activity” means (A) any act or
threat involving murder, kidnaping, gambling, arson,
robbery, bribery, extortion, or dealing in narcotic or
other dangerous drugs, which is chargeable under
State law and punishable by imprisonment for more
than one year; (B) any act which is indictable under
any of the following provisions of title 18, United
States Code: Section 20] (relating to bribery), section
224 (relating to sports bribery), sections 471, 472, and
473 (relating to counterfeiting), section 659 (relating
to theft from interstate shipment) if the act indictable
under section 659 is felonious, section 664 (relating
to embezzlement from pension and welfare funds),
sections 891-894 (relating to extortionate credit tran-
sactions), section 1084 (relating to the transmission of
gambling information), section 1341 (relating to mail
fraud), section 1343 (relating to wire fraud), section
1503 (relating to obstruction of justice), section 1510
(relating to obstruction of criminal investigations), sec-
tion 1511] (relating to the obstruction of State or local
law enforcement), section 1951 (relating to in-
terference with commerce, robbery, or extortion), sec-
tion 1952 (relating to racketeering), section 1953
(relating to interstate transportation of wagering
paraphernalia), section 1954 (relating to unlawful
welfare fund payments), section 1955 (relating to the
prohibition of illegal gambling businesses), section
2314 and 2315 (relating to interstate transportation
of stolen property), sections 2341-2346 (relating to traf-
ficking in contraband cigarettes), sections 2421-24
(relating to white slave traffic), (C) any act which is
indictable under title 29, United States Code, section
186 (dealing with restrictions on payment and loans
to labor organizations) or section 501(c) (relating to
embezzlement from union funds), or (D) any offense

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involving fraud connected with a case under title II,
fraud in the sale of securities, or the felonious
manufacture, importation, receiving, concealment,
buying, selling, or otherwise dealing in narcotic or
other dangerous drugs, punishable under any law of
the United States;

(2) “State” means any State of the United States, the
District of Columbia, the Commonwealth of Puerto
Rico, any territory or possession of the United States,
any political subdivision, or any department, agen-
cy, or instrumentality thereof;

(3) “person” includes any individual or entity
capable of holding a legal or beneficial interest in

property;

(4) “enterprise” includes any individual, partnership,
corporation, association, or other legal entity, and any
union or group of individuals associated in fact
although not a legal entity;

(5) “pattern of racketeering activity” requires at least
two acts of racketeering activity, one of which
occurred after the effective date of this chapter and
the last of which occurred within ten years (excluding
any period of imprisonment) after the commission of
a prior act of racketeering activity;

(6) “unlawful debt” means a debt (A) incurred or
contracted in gambling activity which was in viola-
tion of the law of the United States, a State or political
subdivision thereof, or which is unenforceable under
State or Federal law in whole or in part as to prin-
cipal or interest because of the laws relating to usury,
and (B) which was incurred in connection with the
business of gambling in violation of the law of the
United States, a State or political subdivision thereof,
or the business of lending money or a thing of value

A-16

at a rate usurious under State or Federal law, where
the usurious rate is at least twice the enforceable rate:

(7) “racketeering investigator” means any attorney
or investigator so designated by the Attorney General
and charged with the duty of enforcing or carrying
into effect this chapter;

(8) “racketeering investigation” means any inquiry
conducted by any racketeering investigator for the
purpose of ascertaining whether any person has been
involved in any violation of this chapter or of any final
order, judgment, or decree of any court of the United
States, duly entered in any case or proceeding aris-
ing under this chapter;

(9) “documentary material” includes any book,
paper, document, record, recording, or other material;
and

(10) “Attorney General” includes the Attorney
General of the United States, the Deputy Attorney
General of the United States, any Assistant Attorney
General of the United States, or any employee of the
Department of Justice or any employee of any depart-
ment or agency of the United States so designated by
the Attorney General to carry out the powers
conferred on the Attorney General by this chapter.
Any Department or agency so designated may use in
investigations authorized by this chapter either the in-
vestigative provisions of this chapter or the in-
vestigative power of such department or agency other-
wise conferred by law.

(Added Pub.L. 91-452, Title IX, § 901(a), Oct. 15, 1970, 84 Stat.
941, and amended Pub.L. 95-575, § 3(c), Nov. 2, 1978, 92 Stat.
2465; Pub.L. 95-598, Title III, § 314(g), Nov. 6, 1978, Stat.
2677).

A-17

§ 1962. Prohibited activities

(a) It shall be unlawful for any person who has received any
income derived, directly or indirectly, from a pattern of racket-
eering activity or through collection of an unlawful debt in which
such person has participated as a principal within the meaning
of section 2, title 18, United States Code, to use or invest, directly
or indirectly, any part of such income, or the proceeds of such
income, in acquisition of any interest in, or the establishment
or operation of, any enterprise which is engaged in, or the ac-
tivities of which affect, interstate or foreign commerce. A pur-
chase of securities on the open market for purposes of invest-
ment, and without the intention of controlling or participating
in the control of the issuer, or of assisting another to do so, shall
not be unlawful under this subsection if the securities of the issuer
held by the purchaser, the members of his immediate family,
and his or their accomplices in any pattern or racketeering ac-
tivity or the collection of an unlawful debt after such purchase
do not amount in the aggregate to one percent of the outstand-
ing securities of any one class, and do not confer, either in law
or in fact, the power to elect one or more directors of the issuer.

(b) It shall be unlawful for any person through a pattern of
racketeering activity or through collection of an unlawful debt
to acquire or maintain, directly or indirectly, any interest in or
control of any enterprise which is engaged in, or the activities
of. which affect, interstate or foreign commerce.

(c) It shall be unlawful for any person employed by or
associated with any enterprise engaged in, or the activities of
which affect, interstate or foreign commerce, to conduct or par-
ticipate, directly or indirectly, in the conduct of such enterprise's
affairs through a pattern of racketeering activity or collection

of unlawful debt.

(d) It shall be unlawful for any person to conspire to violate
any of the provisions of subsections’ (a), (b), or (c) of this section.

(Added Pub.L. 91-452, Title IX, § 90l(a), Oct. 15, 1970, 84
Stat. 942.)

' So in original. Probably should be “subsection”.

A-18

§ 1964. Civil remedies

(a) The district courts of the United States shall have jurisdic-
tion to prevent and restrain violations of section 1962 of this
chapter by issuing appropriate orders, including, but not limited
to: ordering any person to divest himself of any interest, direct
or indirect, in any enterprise; imposing reasonable restrictions
on the future activities or investments 6f any person, including,
but not limited to, prohibiting any person from engaging in the
same type of endeavor as the enterprise engaged in, the activities
of which affect interstate or foreign commerce; or ordering
dissolution or reorganization of any enterprise, making due pro-
vision for the rights of innocent persons.

(b) The Attorney General may institute proceedings under this
section. In any action brought by the United States under this
section, the court shall proceed as soon as practicable to the hear-
ing and determination thereof. Pending final determination
thereof, the court may at any time enter such restraining orders
or prohibitions, or take such other actions, including the ac-
ceptance of satisfactory performance bonds, as it shall deem
proper.

(c) Any person injured in his business or property by reason
of a violation of section 1962 of this chapter may sue therefor
in any appropriate United States district court and shall recover
threefold the damages he sustains and the cost of the suit,
including a reasonable attorney’s fee.

(d) A final judgment or decree rendered in favor of the United
States in any criminal proceeding brought by the United States
under this chapter shall estop the defendant from denying the
essential allegations of the criminal offense in any subsequent
civil proceeding brought by the United States.

(Added Pub.L. 91-452, Title IX, § 901(a), Oct. 15, 1970, 84 Stat.
943.)

A-19

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

EDWARD L. ANDERSON, et al.,

Plaintiffs,

V. 85 Civ. 4215 (RJW)

CARL C. ICAHN, et al.,

Defendants.

February 4, 1987
4:15 p.m.

Before:

HON. ROBERT J. WARD,

APPEARANCES

LOWEY, DANNENBERG & KNAPP
Attorneys for plaintiff
STEPHEN LOWEY
NEIL L. SELINGER,
Of Counsel

WOLF POPPER ROSS WOLF & JONES
Attorneys for plaintiffs Lage and Jaffe
JOHN MAGE,
Of Counsel

District Judge

A-20

GOODKIND, WECHSLER, LABATON & RUDOFF
Attorneys for plaintiff Bronstein
EDWARD LABATON,
Of Counsel

WEIL, GOTSHAL & MANGES
Attorneys for defendants
DENNIS J. BLOCK
STEPHEN A. RADIN,
Of Counsel

HUGHES, HUBBARD & REED
Attorneys for Viacom International
PETER M. KREINDLER,
Of Counsel

(Case called; all parties ready)

THE COURT: I’ve had the opportunity to review the sub-
missions and I think the first order of business is the propriety
of the derivative action in terms of the demand on the board.
As some of you are at least aware, I have written on this sub-
ject, although subsequent learning from the Court of Appeals
in another matter indicated that there was some exception taken
to some of the views that I expressed.

Let me, however, tell you how I see it. We start with Rule
23.1 of the Federal Rules of Civil Procedure. In relevant part
that rule requires that the complaint allege with particularity
the efforts, if any, made by the plaintiff to obtain the action
he desires from the directors, and, if necessary, from the
shareholders, and then he is to allege the reasons for his failure
either to obtain the action or for not making the effort.

The defendant, in moving to dismiss the failure to make this
demand which they contend is required, starts by citing some
general policy arguments. I don’t really put too much stock in
those arguments but would turn next to the assertion that the
plaintiffs have not pled with specificity the reasons such a

A-21

demand would be futile since the plaintiff has sued no board
members, since Icahn has contracted to leave the board members
alone for ten years and since a majority of the board is indepen-
dent. As I understand the plaintiff's response, it is argued that
the defendant or defendants, if you want to call them that,
primarily Mr. Icahn, lack standing to raise the objection.

In the case to which I referred a few moments ago, I held
that the general rule is that strangers cannot complain of a plain-
tiffs failure to make a demand. The defendants respond by rely-
ing on Third Circuit precedent. Needless to say, when one has
spent the time that I spent in drafting a opinion — and you
will recognize that one was not off the top of my head — I prefer
to rely on my own precedent absent contrary precedent in this
circuit or from the Supreme Court.

The plaintiffs point out to us that before filing suit Anderson
sent a hand delivered letter to the board demanding that the
board not enter into any buyback arrangements. That’s set forth
in the complaint, paragraph 75. Plaintiffs go on to argue that
any further demand would have been futile since the board
members were interested in and biased the transaction to
preserve their perks.

In addition, plaintiff argues that the Viacom board implied-
ly acquiesced by filing an answer that did not raise it. I start
by suggesting that this whole question of futility in the context
of this lawsuit is a Federal question. Although what must be
pled and with what particularity is not necessarily totally clear.

As I read the cases cited in Wright and Miller, the question
is could any facts indicating futility be shown? Needless to say,
this is an issue, as with so many others, where a determination
of the sufficiency of allegations of futility depend upon the cir-
cumstances of the individual case. There is authority for that.

The authority is in Kastor v. Modification Systems, a case
which can be found at 731] F.2d 1014, Second Circuit 1984 page
1018. The Court of Appeals noted that if the directors are

A-22

adversely interested the demand is presumtively futile, citing
authority, and where allegations in the complaint permit the
court to infer that the directors lack their requisite
disinterestedness, a demand is not required. Even were we to
dismiss, clearly the proper course, as in the Kastor case, which
I mentioned a moment ago, would be to allow an amendment.

That gets us to a case which we will be talking about a bit
this afternoon, Feinberg v. Carter, Judge Walker’s case. We have
some of the same cast of characters. I don’t use that word pe-
joratively, involving the 1984 repurchase of Goodrich stock, that
Mr. Icahn had required.

There Judge Walker denied the defendant’s motion to dismiss
for failure to make a demand, looking specifically for whether
there is any business justification consistent with the challenged
transaction. If the directors don’t have any good reason,
presumption of disinterestedness is reduced.

Judge Walker had found no such good reason to pay the
premium and found as well that the directors had good reason
to do it, to hold on to their various perks, their compensation,
pension benefits and so on. That case has a distinction that |
don’t think we have here. In that case the board initially covered
up the buyback. As you all know, Judge Walker certified the
question under 1292 B.

I think at this stage, with that background, I should ask a
couple of questions. Why don’t I ask defendants to tell me why,
in their view, Judge Walker’s opinion is not persuasive?

MR. BLOCK: Anything Judge Walker says is persuasive, your
Honor. I am Dennis Block and represented the defendants. The
Goodrich case, your Honor, as you quite correctly point out,
number one, is distinguishable on the basis that there was a viola-
tion of proxy rules 14(a) by all of the directors. As Judge Kearse
in the second decision in Galiff v. Alexander pointed out under
very proper circumstances not cited by Judge Walker that in
and of itself would have been sufficient to excuse demand. More

A-23

importantly, I think where Judge Walker went off in Goodrich
is where he found the directors had a pension. And the pension
was determined based on years of services and that these direc-
tors needed to remain in office in order to maximize their pen-
sion. That interest is the financial interests that the courts look
to in determining whether or not directors are biased are so con-
flicted so as to take away the business judgment rule of defense
from their determination.

It was the financial interest, and whether Judge Walker was
clear in the way he described it or not, he certainly set forth
those facts about that board of directors. Every single director
serving on that board had a unique pension plan and it was in
his personal financial interest to remain on the board. So keep-
ing Mr. Icahn out of taking control of Goodrich in that case
was a very significant factor.

Additionally, the 14(a) violation in and of itself should have
excused demand. In this case eight of the 12 directors have no
financial interest pled by the plaintiff. Four more officers —
eight are outside directors and I think that distinguishes the case,
your Honor.

THE COURT: What is your response to the standing ques-
tion: In view of the fact that Viacom did not raise this particular
defense, do you have standing to raise it on your own?

I must tell you I don’t think you do.
MR. BLOCK: Your Honor, let me first reverse the issue.
THE COURT: No, just answer the question.

MR. BLOCK: I will answer it. Yes, I do have standing. As
your Honor points out, not even looking toward the Schlensky
decision but looking at Markowitz here in your Honor’s court
is that the key had to be somebody with a fiduciary relation-
ship as opposed to a stranger in the transaction. My client had
and has 2.5 million warrants to purchase the common stock of
Viacom which is the equivalent of owning Viacom stock. We
are the equivalent if not better than the plaintiff who has a less

A-24

share of Viacom and we stand in the same sphere in the hierar-
chy of the corporation. We are truly a fiduciary and I suggest
a closer fiduciary than the investment advisor in the Markowitz
case that you found did have standing.

I would question whether any of the decisions thus far in this
issue has pinpointed the real problem. Standing is an issue that
in the first instance the plaintiff must get by. He must have stand-
ing to be in court. In order to be here pleading a corporation's
claim he has to have standing and he gets standing by either
having the court accede to his request to be here or by
demonstrating futility. It is his burden which he must overcome.

THE COURT: He has chosen the futility route.
MR. BLOCK: And has failed miserably in pleading it.

THE COURT: Perhaps under Chitty’s Rules he might not
make it but we don’t use them any more. At least I don't.

He did hand deliver a letter, and as I indicated has pleaded
that. It seems to me that that is something we ought to look at.

What is the effect of that letter?

MR. BLOCK: I cite your Honor to a case I handled in
Delaware which is right on point, Seibert v. Harper and Row.

THE COURT: In Federal court?

MR. BLOCK: Noin Chancery Court. I might point out that
the Delaware Chancery rules parrot 2.1 in all respects.

THE COURT: But the chancellors do not necessarily reflect
in all respects the views that we reflect or are required to en-
force the Federal securities laws. You know the differences that
have come through the years. And Delaware, being that quaint
state that it is, has always taken a rather strict position which
I always considered was somewhat favoring the corporation.

A-25

Here we attempt, I think, to go down the middle. He did write
a letter. It does seem to me under the circumstances he acted
sufficiently. Frankly, I don’t see that Mr. Icahn, who sold out
at a premium, who owns no stock at the present time and who
is alleged to have been a wrongdoer should be able, when the
corporation has chosen not to do it, to impose the demand re-
quirement to avoid a suit claiming misdeeds on his part.

It does seem to me that you are on the short end of this one
based on the facts — and I could get into some comments where
you attempted to distinguish Judge Walker’s case. There was
no finding in the Feinberg case that a particular number of direc-
tors had or didn’t have already vested pensions. And frankly,
I never ran into a major corporation yet where the directors did
not receive some type of remuneration — perhaps not as substan-
tial as Goodrich — but they are usually compensated handsome-
ly for attending at directors meetings.

It strikes me that all of this is quibbling and I think should
not detain us long since we have many more important things
to do.

I think you have done your best, as you always do, to answer
the impossible questions that I put to you. Why don’t you sit
down a moment and let me hit the plaintiff's counsel.

Why didn’t you make the demand?
MR. BLOCK: If I might before I sit down.
THE COURT: Of course.

MR. BLOCK: I would like to bring two cases to your Honor'’s
attention. One is Allison v. G.M. and another case I had a
pleasure of being involved in the Third Circuit which stands
for the same proposition that the Seibert case stands for which
is that a pre-suit letter is not demand. I would like to point out
to the court that the demand here wasn’t a demand on the cor-
porations to sue my client. It was a demand on the corporation

A-26

not to do the transaction and to sue themselves, in essence, to
sue the directors for breaching the fiduciary duty. Never men-
tioned Mr. Icahn as a potential defendant or a wrongdoer.
Secondly, I would like to mention the E.F. Hutton case in this
circuit affirmed by the Second Circuit which says in language
clear as can be that the kind of interest necessary to excuse the
man is financial interest.

I go to Judge Walker’s opinion again and point out that the
uniqueness of the pension plan set forth in that case is a very
distinguishing factor.

I take it back, Hutton has not been affirmed. I think it is Judge
Owen and right on point with this issue.

Finally, with respect to the question of demand, demand has
been made, apparently, by some of these very same plaintiffs
in connection with a companion parallel state court proceeding
which strangely enough isn’t here but is across the street and
the company rejected it. The company seemed to have no pro-
blem there in rejecting the demand.

THE COURT. It interested me that the company which might
have been expected to raise this, didn’t and this stranger to the
proceedings did. We are not saying here, and I want you to
understand this, Mr. Block, that the letter was demand. But that
it bears on the futility of doing anything, and indeed, in my
judgment, if anyone could be reasonable, this was futile. The
directors were not about to do anything. They had decided to
pay off.

In any event, why, and I asked this once before in another
case where I went through this whole exercise — to plaintiff's
counsel, why didn’t they make a demand?

MR. LOWEY: Good afternoon, your Honor. Stephen Lowey.
I hesitate to add very much to your Honor’s exposition already
because I learned long ago not to try to improve upon a situa-
tion where —

A-27

THE COURT: Where you are ahead.

MR. LOWEY: — and the judge has grasped the arguments
in our briefs as completely or even better than we made them
ourselves. But I will of course try to answer a question which
I don’t regard at unanswerable and that is: Why didn’t we make
the demand. Your Honor has already alluded to main point.
The first being that under the circumstances where we had tried
to avoid the situation, this was not hindsight on our part but
rather foresight. It was clear having sent the letter that any fur-
ther communication would be futile.

Your Honor has already mentioned that. Clearly another letter
would have been a futility.

A second reason, and that is spelled out in the complaint, is
that the nature of the claim is that there was coercion exerted,
there was extortion exerted. The nature of the greenmail act here,
and I am sure I will have an occasion to develop that more ful-
ly in the Hobbs Act argument. But the nature of the greenmail
act is an act which is done, or the payment is done against the
will of the payee. It is an extortion type of claim, and we will
get to the point of where the Hobbs Act applies. But the point
is it was not voluntary. We alleged —

THE COURT: It was voluntary —

MR. LOWEY: It was voluntary but it was coerced. It was
voluntary. My point is this. That we allege that the payment
evidenced a fear by the directors that unless the payment were
made there would be economic loss suffered by Viacom and the
Viacom officers, the loss of perks and all of that. That that was
very real and the reason for the payment. Under those cir-
cumstances there's a definite futility in making a subsequent
demand.

We tried to avoid it in the first place. The reason they did
it is they knew perfectly well that they were violating duties,
they were paying corporate waste. They did it anyhow and they

A-28

did it anyhow because of the coercive nature of the extortion
claim.

That is a circumstance that makes it doubly futile.

THE COURT: In my view at least it would have been very
good use of a 22 cent stamp and might have spared a number
of trees.

Do you know, if I may ask this fact question, what the board
members receive as compensation? They get per meeting, per
year, some pension benefits after they’ve served as directors? It
should be somewhere in a 10-K I would imagine.

MR. LOWEY: We have in the complaint only the compensa-
tion of the inside board members, in paragraph 7. We do not
have the compensation of the outside board members.

THE COURT: That’s what I would be interested in.

MR. LOWEY: We can supply that. It is not in the complaint
but certainly it is publicly available, yes.

THE COURT: Let me ask you this question: If you were given
this choice, which option would you accept: To wait, in view
of Judge Walker’s certification, and see what the Second Cir-
cuit does with this particular matter? Or to proceed with the
lawsuit and take your chances that by following Judge Walker
you might very well wind up in a situation where we would
have wasted some time and effort?

MR. LOWEY: I would certainly rather proceed. First of all,
I have every confidence by my reading of not only that case but
other cases that bear upon the issue that there is every reason
why Judge Walker should be affirmed, if the Second Circuit takes
it — and that has not yet been decided yet. We can advise the
court of that when it happens. We are monitoring it but it hasn’t
happened yet. So to answer your Honor’s question today, we
certainly have many reasons to wish to proceed and not to await

A-29

a determination by the Second Circuit, if indeed the Second Cir-
cuit will take it.

THE COURT: Very well. I don’t think there’s anyone else to
speak on this particular issue and I am prepared to make a rul-
ing on this question right now.

The court holds that in the context of this case a demand
would be futile.

I take into account the plaintiff's prior letter, although I do
not perceive it to be a proper demand. I do consider it in mak-
ing my determination that a proper demand would have been
futile.

As a second ground for my determination I hold that the
defendants lack standing to assert this defense inasmuch as the
defendants are no longer stockholders, nor do they in any way
presently represent the corporation. And I would add that in
their wisdom, counsel for the corporation have determined not
to assert this defense.

We will move on now to the question of shareholders demand.
There we would look to Wright and Miller. We have here another
case where far too many trees died in vain. The requirement
in Rule 23.1 that the plaintiff make demand on the shareholders
“if necessary” incorporates substantive state law. If state law
would require such a demand, so too would the Federal courts.

The plaintiff relies upon Federal law, or when the claim other-
wise involves Federal questions, however, the courts waive this
requirement and I cite 7 C Wright and Miller paragraph 1832
at pages 122-23.

RICO, which we will be dealing with shortly, is a Federal
statute. In this court’s view the shareholder demand is not
required, and, in fact, even on the New York State extortion
count the predicate acts in state law only lay the foundation
for substantive Federal liability. So if RICO survives this

A-30

motion, it being a Federal statute, I think the demand is not
required.

I'd ask Mr. Block, who rarely concedes anything, whether in
light of what I have just said the defendants are not prepared
to concede that a shareholder demand was not necessary.

MR. BLOCK: Not only are we not ready to concede, we point
to you Allison v. G.M. as being right on point where the Third
Circuit stated that you look to state law not to Federal law. And
that was a RICO claim.

THE COURT: Can't you come up with anything other than
the Third Circuit? I told you before that I am particularly con-
cerned with this circuit and the Supreme Court. There are
numerous cases excusing shareholder demands. For example,
when shareholders are numerous. In this case you have a publicly
traded company which is listed on the New York Stock Exchange.
I have no present recollection of the number of shareholders,
but those factors alone that I have just mentioned would in-
dicate that shareholders are numerous. Anybody have any fact
on that? I don’t want to guess.

MR. LOWEY: We do have it in the complaint I believe. In
paragraph 5 C of the complaint it is alleged that as of March
3, 1986, Viacom had issued and outstanding 20,636,777 shares
of common stock held by more than 18,000 shareholders of
record.

THE COURT: My law clerk has just given me the same in-
formation which is then supplemented by what | said about
listed and traded. That's a lot of shareholders. It seems to me
if we were talking numerosity, you have got a number of
shareholders.

Does the defendant, Mr. Block, contend that Ohio law is
binding?

MR. BLOCK: Yes, your Honor.

A-31

THE COURT: I thought you would.

MR. BLOCK: Your Honor, I might cite to you two cases by
brother judges in this district, Duffy and Owen, to the effect
that the number of shareholders is not the test and that both
of those judges did enforce in the context of public companies
the requirement that demand be made on shareholders and that
the cases aren’t cited in our brief but you should have them.
One is Judge Owen’s decision in Magid v. Mortgage Growth In-
vestors, paragraph 95, 673 of C C H, 1976 Southern District
case. And the second one is Clairdale Enterprises v. C.1. Realty
Investors at 423 Fed. Supp. 257, Judge Duffy.

THE COURT: I respect both of my colleagues. In my view
at least the requisite demand on shareholders should be excused
where the shareholders are as numerous as they are here.
Needless to say, if the RICO claim survives scrutiny I think Ohio
law becomes irrelevant. But if you don’t want to concede that.
we can leave it for another time.

MR. BLOCK: Your Honor, so I don’t misunderstand, it is only
relevant with respect to the issue of standing to enter the court
and that’s with respect to the demand on shareholder issue and
the demand on the board issue, not on the substance of the claim.

THE COURT: Let me say this. It is the height of something,
— some people might say chutzpah, but I won't — it’s the height
of something for a stranger, not such as Mr. Icahn, to wrap
himself in the mantle with which he has cloaked himself and
make these arguments concerning demands, particularly
shareholder demand. May I inquire if in Judge Owen's case and
Judge Duffy's case the person was a stranger as is Mr. Icahn?

MR. BLOCK: My client in the Magid case was the advisor
to the fund so I guess his honor found that wasn’t a stranger.
But I might point out Mr. Icahn is the second largest shareholder
in Viacom. He has warrants to purchase over 2 million shares.
to exercise right now. By tendering a check we are the second
largest shareholder in the corporation. To characterize us as a

A-32

stranger when the Plaintiffs in the aggregate don’t have a ma-
jority of the stock I believe is unfair.

THE COURT: I don’t regard his warrants as I do the hopefully
dividend producing certificates that are held by the shareholders.
I assume as the holder of a warrant, which is usually a right _
to purchase, he doesn’t obtain dividends or anything like that
from the company in connection with his warrants, does he?
He just has a right to purchase. He could, in my judgment, go
out and by calls and be in the same posture. But that’s your view.

MR. BLOCK: I would like to cite a slew of cases that agree
with my view.

THE COURT: I am sure you would but it would deter us far
too long. We have been deterred already, Mr. Block. I’ve made
my ruling. Let us move on to the question of RICO standing.
That's the most interesting question that we have here.

I don’t know whether you are raising that question, Mr. Block,
of RICO standing.

MR. BLOCK: Your Honor, the issue we are arguing is that
there are no predicate acts.

THE COURT: Not standing?
MR. BLOCK: Not standing.

THE COURT: All right, thank you. That's the first time we
have been able to move forward without some discussion.

Although I pondered this since my participation in a recent
program which was participated in by one of your colleagues
who is not here today, has given me much to chew about on
the subject, but I think we can pass on that and move immediate-
ly to the matter that you just raised, the matter of the predicate
acts.

A-33

There I think I will put the heat a little bit on the plaintiff's
counsel. Let’s turn first to 10b and Rule 10b-5.

Counsel, which material misstatements do you intend to rely
upon?

MR. LOWEY: Your Honor, we allege two predicate acts of
securities law violations, each in connection with a transaction
which was also a greenmail transaction. Both involving the false
statements in 13(d) filings made by Mr. Icahn in connection with
those transactions. The first of which was the Saxxon Industries,
the second of which was Hammermill Paper Company.

We do allege that those filings were false, they weve viola-
tions of 13(d) and they were knowingly false. The facts related
to those filings are set forth in the complaint. That is to say,
the nature of the entire transaction and the fact that these fil-
ings were made. I might say that we are not the first to have
raised the question of the falsity of those filings. In each case
there has been prior allegations of falsity, none of which have
been resolved in a dispositive way.

In the Saxxon Industries case the allegation was made that
a false 13(d) was filed and that gave rise to a 10b-5 violation.
Judge Pierce, sitting as a district judge, denied defendant’s mo-
tion to dismiss that. So that case was Schnell v. Schnall. I can
hardly pronounce it, but in any event, the import of Judge
Pierce’s decision is that the issue as to whether or not 10b-5 was
violated is an issue of fact. That case went to trial, I understand,
and was settled during trial. So the jury never got to decide
whether or not Mr. Icahn committed violations of Rule 10b-5
in connection with the Saxxon matter because a settlement was
entered into in the course of the trial.

THE COURT: Judge Brieant, of course, knocked down similar
arguments in the Chock Full ’o Nuts case arguing that any
shareholder would know that a buyback is possible. What do
you have to say about that?

A-34

MR. LOWEY: I will answer that, but what I have to say about
that, that goes I think more to the question of extortion and
less to the question of securities violation predicate acts, but I
will answer that.

First of all, that was not a Hobbs Act case. Judge Brieant was
not being directed to and asked to read and apply the Hobbs
act as we are asking your Honor to do. It came up in an entire-
ly different coritext.

Secondly, this was a fignt between a raider, if you will, and
a management, a litigation in which clearly the vigor of the
defense negated any greenmail payment. There was no extor-
tion involved or possible extortion clairn because nothing
was paid. There was no payoff and no payoff intended or
contemplated.

The litigation proceeded really with the defendants raising
the argument that this is what he intends, he intends extortion.

THE COURT: What difference does that make? The ruling
there was on 13(d), was it not, not Hobbs Act?

MR. LOWEY: It was on 13(d). But the point of it is that the
extortion — what your Honor directed my attention to and what
is the point of the case that’s made by the defendants is that
Judge Brieant’s order said there is really nothing much wrong
wit: what is happening here based upon what was argued to
him and the situation as he saw it. He said there’s a cow that
somes dy wants to milk and the other guy wants to milk it and
that’s sort of natural. That’s the way of corporate life. We all
know that.

THE COURT: That's the way it is up in the northern part
of our district, you see, we work with analogies such as cows.

MR. LOWEY: If that’s the analogy I haven't seen any cows
near my home. I think clearly Judge Brieant was clearly speak-
ing dictum as far as that argument goes. It was a very colorful

A-35

way of expressing it. But really, judge, you compare that to Judge
Walker and see the contrast. Judge Walker, who had a green-
mail case in front of him, a real live greenmail case, not a
hypothetical greenmail, because that’s what was being argued
in Chock Full ’o Nuts, they claimed there was an intention to
extort or reference was made to the extortionary nature of it,
but that was all pure hypothetical.

Judge Walker, on the other hand, had a pleading in which
there was a consummated greenmail, and addressing that
pleading he saw something very much wrong with the situa-
tion. He said the directors had no basis for exercising business
judgment under those circumstances. Clearly wrong. You com-
pare Judge Brieant to Judge Walker and they are totally opposite.

Judge Brieant I forgive because he was not faced with facts
that would lead him to the conclusion that Judge Walker came
to, and it was really pure dictum and was throwaway, as far
as I see it, really did not meat any of the issues that we are faced
with today.

THE COURT: I would ask you whether or not you believe
that Judge Walker properly disposed of these contentions?

MR. LOWEY: Are you speaking of the fiduciary duty
contentions?

THE COURT: Essentially.

MR. LOWEY: Yes, I do. I believe he is absolutely correct on
that.

THE COURT: Would you want to argue that Icahn’s plans
as they developed constitute manipulative devices? Was he
manipulating the stock in that sense?

MR. LOWEY: We have not alleged that and we have no basis
for alleging it at the moment and we would not intend to pur-
sue that approach.

A-36

THE COURT: Of course, he did not cause the entire value
of price of the shares across the board to change, really, he just
got his own payment and didn’t seem, from my perspective, to
be manipulative either. So I can’t fault you for your position
there.

Just continuing along the same lines, are your predicate acts
Hobbs or on the securities laws, which you just have argued?
Or do you say that you have one from column A and one from
column BP

MR. LOWEY: We have six from column A, which is consum-
mated extortion; we have two column B which is securities law
violations, and we have an additional nine, I believe, from
column C which are conspiracies to commit extortion. So those
are the predicate acts as they are delineated in the complaint.

THE COURT: You would make a good United States Attorney,
you could come in with a multi-count indictment.

I would ask you, however, you were commenting about Judge
Walker a few moments ago, if under 10b-5 didn’t Judge Walker
throw out those contentions. I thought he had.

MR. LOWEY: Judge Walker I think it was 14(a). yes he, he
he did dismiss a 14(a) violation.

THE COURT: Let’s move on to Hobbs because I think as you
said at the outset that’s really the center of it.

Let me again, if I could without dwelling too long on it, set
the stage and then my first inquiry will be to the defendant's
counsel.

I think we focus here, since we don’t have a real contest on
RICO standing, on what I would characterize as the predicate
acts. What I am looking at, frankly, is at this point Judge
Walker’s opinion which I found to be exceedingly helpful, in

A-37

general. He discussed the 10b claims and then he moved on to
the others.

I am going to pass to the others because I think it’s just as
well under the circumstances, the hour is late. You start out with
the statute itself, the language of which essentially is well known
to both of you and which obviously he focuses on extortion which
is defined as the obtaining of property from another with his
consent induced by the wrongful use of fear. That fear could
be physical, could be economic.

As I understand the plaintiffs theory of the case, it is that
when Mr. Icahn purchased Viacom stock he put the Viacom
board in fear of their jobs, he put them in fear of business disrup-
tion, and the fear came from the fact that the directors knew
of his reputation from prior similar acts.

The arguments raised by the defense here I think could be
really dealt with summarily. There is a contention first that
Icahn’s acts, which is characterized as the purchase of stock in
waging a contest for corporate control, are not unlawful, and,
as well, that threats to engage in unlawful conduct cannot con-
stitute the basis for an extortion claim. And they urge dismissal.
I have a lot of difficulty with that argument.

Blackmail is often a threat to do legal or permitted acts. And
I must say I have those cases here when I try a Hobbs Act case.

The plaintiffs have cited a number of cases involving labor
picketing, which is lawful in itself, but obviously becomes il-
legal when labor leaders take side payments, and a lot of cases
to that effect. Certainly a corporation has no absolute right to
be free of contests for corporate control just as an employer has
no guarantee of labor peace. It is nevertheless extortion for an
investor to threaten to fight or strike to coerce a transfer of cor-
porate assets that is a payment for his own personal benefit.

I must say that in the context of the activities here, although
perhaps there has not been too much judicial acceptance of this

A-38

up to now, the analogy in my view is, if not persuasive,
appealing.

The defendants argue that the Hobbs Act does not apply. I
must say over Judge Pratt’s dissent, the Court of Appeals for
this circuit applied the Hobbs Act in a way that I think ap-
plicable here.

So I turn to Capo — not the mob figure but the name of the
defendant — a case that has been cited a number of times. It
is relatively recent case having come down just last year. The
victim’s fear may clearly be fear of a loss that is purely economic.
Judge Walker has accepted this in his case and it seems to be
a common-sense argument that both officers and directors, par-
ticularly the insiders, fear the loss of their positions. For the in-
siders it’s often their livelihood. And notice that the economic
fear here certainly need not be of self-interest but might be in-
formation that the corporate economy, that is the corporation’s
own economic well-being, might be disrupted. C!early the loss
can be future oriented and the defendant need not have instilled
the fear. His reputation would often be enough.

There were two fellows in this state about 50 years ago whose
names were Lepky and Gura. They just had to show up. In fact,
as I recall it, people would show up on their behalf and say that
they were there on their behalf and extortion payments would
be promptly forthcoming, because the persons who were pay-
ing the money were aware of the reputation of the individuals.

So you have the Capo court recognizing, as I say, these essen-
tial factors, and recognizing that the bottom line was the ex-
ploitation of a fear of economic loss in order to obtain property
to which the exploiter is not properly entitled.

We have a factual question here and that would be the fear
of the board. So it may well be that some day down the road
that is going to be something to be presented to a court and/or
a jury. ‘

A-39

The real issue that we have seen at least is whether Mr. Icahn
is entitled to the premium he has obtained. That is, is it a
legitimate gain which comes about by hard bargaining, or if
the payment is improper. That characterization seems to im-
plicate other bodies of substantive law. And it seems to me we
could look at it from the point of view of the directors.

What I am getting at, obviously, is there are factual ques-
tions here which probably preclude the dismissal which is
sought. Perhaps once they are fleshed out with discovery, there
may be a disposition short of a trial. I don’t see the disposition
coming about at this juncture.

You get to this question: Can the directors legitimately pay
premium? Certainly what they pay, how they pay it is essen-
tially a matter of some common knowledge. Then we get into
all sorts of problems: Corporate articles, state corporation law
and the good old business judgment rule. And we have to look
at it from the adequacy of the consideration. As I understand
it, the claim is that Icahn gave his promise to go away for a
number of years in exchange for a payment received for his stock
which was in excess of the value of the stock on that day on the
market.

I note the defendant’s hypotheticals and would comment that
none of them are persuasive. Their first example omits entirely
the element that the corporation pays somebody property to
which they are not entitled, that is, a premium. When you add
it, it becomes our case. The second example, likewise, omits any
side payment of a premium outside of the collective bargain-
ing agreement. The Hobbs Act could and perhaps should apply
to strike suits except for a settled line of cases allowing resort
to the courts.

It seems to me that under the circumstances we have got all
sorts of ramifications which I won’t burden you with, including
anti-trust violation. There just doesn’t seem any defensible
distinction or reason to accept the invitation extended by the
defendants.

A-40

I think the only one of the examples which I thought was an
interesting one was the sports example. Is assuming the player
is under contract, this might be actionable under Capo. It is,
however, a whole lot easier to see such a threat as hard bargain-
ing, since the player obviously desires a signed contract; whereas
I am not too sure that most people who were in are in the posi-
tion of Mr. Icahn earnestly wish to assume control of a corpora-
tion. Needless to say, he did assume control of TWA. Whether
that means that’s enough for any one man or not I am not
prepared to say.

That distinction is a plausible one and may be sufficient to
hang an argument on. It seems to me what we are going to be
talking about is the exploitation of fear, the cause of which need
not be unlawful, and the intent of the exploiter. Clearly the use
of fear must be wrongful to survive the test.

The plaintiffs recognize that if Mr. Icahn’s intent at the outset
is crucial. If he didn’t intend to complete a takeover but only
to force the payment, then I imagine the act would be indictable.

It seems to me that puts the plaintiffs at the bottom of an
uphill fight. But it seems to me at this stage proper pleading
will survive this, as well as a Rule 56 motion just as long as the
court can be satisfied that Icahn’s intent remains an issue.

I think that what I have done is pretty much spell out my
thinking. There are two other matters that should be dealt with
briefly. I don’t think either of them are binding. The reliance
of the defendants on the Chock Full ’o Nuts case that was re-
ferred to a few minutes ago, and the Dan River case down in
the Fourth Circuit.

I don’t think, frankly, that that’s going to turn too many people
around. Turning to Mr. Block, make your argument as you
perceive it and then I will ask you a couple of questions.

MR. BLOCK: After all that you are going to let me make
my argument? Thank you, your Honor.

A-41

Your Honor, you are dealing with commerce, and if you are
correct in what you say, you have put one major road block in
legitimate commerce on the street, because in any negotiation
concerning anything leverage and economic fear is the
motivating factor that ultimately results in the determination
by both sides as to where to agree, how cases are settled.

You look at what you are trying to accomplish and what you
may lose. Fear, which you have identified as an issue here, can’t
just be fear. Even Judge Kearse in Capo says it must be
reasonable fear.

THE COURT: I figured that my cushy position as an officer
and director of a profitable corporation is going to be terminated
and that I perhaps do not have the proverbial golden parachute
and I have reached a point in my career that it is unlikely that
I can do as well, wouldn’t it be reasonable for me to have that
economic fear?

MR. BLOCK: You are suggesting a director has breached his
fiduciary duty in what you describe. Let me just cite to you what
a director says. He says this case can’t be looked at in a vacuum.
Director Allan Johnson asked the exact question. There is a
similar case in the state court.

THE COURT: When is that case going to be tried?

MR. BLOCK: “Q. Is it fair to describe the board as being
scared that Mr. Icahn may get control of this company?

“A. I don’t think being scared had anything to do with it.”
That’s not part of this motion but let me put the case in con-
text. Mr. Icahn brought bought 17 percent of Viacom and an-
nounced he wanted to pay a $10 premium over the market, $75
for a $65 stock. The company first adopted a poison pill which
says you can’t buy the company. Then they add adopted a poison
put which means if you buy the company all the debt holders
get all the stock back. They answered that they were going to
do a discriminatory tender offer. They were going to make a

A-42

tender offer to all the shareholders of the company. But Mr.
Icahn I guess I ought to be suing for extortion, civil extortion
which doesn’t exist against the board of directors of the com-
pany who literally forced my client to sell his stock.

The Fourth Circuit in describing this kind of circumstances
in the case you have looked at, the Dan River case, said, in
essence, this is just a question of whenever somebody seeks to
purchase a company, a board, in its fiduciary responsibility and
relationship, has to make certain determinations. It may be
defensive actions. One of the defensive actions it may take is
it might enter into negotiation and find the strike price at which
a willing seller is willing to sell and the company is willing to
buy.

This case shouldn’t be looked at in a vacuum. The price of
this stock according to today’s newspaper on a post-split slit basis
is $100 a share. Maybe recision is an appropriate ready. We could
give back to the corporation a $75 stock that we sold a few
months ago and get back $100. The very board of directors wants
to do a management L B O, but they only want to do it at $98
because an outside group wants to pay a hundred. To look at
the case of Viacom and say that because the plaintiff says we
received more than the market price is to be myopic.

Stocks have values. The market place need not always find
the right value. Here we have evidence, that the court can take
judicial notice of, that the company is worth, let alone in the
eyes of the greedy management $100 dollars a share, 33 1/3 per-
cent more than my client more than a few months ago received
for his shares. I think that demonstrates the question of bargain-
ing gaining. There was a buyer that thought the stock was worth
bump and a seller that thought it was worth bump. That we
receive something more than the market I don’t think is any par-
ticular issue. That when Joe Morris tells Mr. Parcells that he
is not going to play in the superbow] unless he received a 100,000
is not extortion.

THE COURT: Joe Morris is an unique individual?

A-43

MR. BLOCK: 17 percent of a company is a unique amount
of shares.

THE COURT: Is it really? Other than it is a lot of shares,
it’s not unique. Each share as a par value. Each share entitles
the shareholder to a certain per share dividend. The market
values, the shares, it seems to me that market value is used for
many purposes, among other things, the tax purpose. But here
Icahn got $55 million more than the market. Why? That’s the
question. Why?

MR. BLOCK: Because his choice, as put to him by board of
directors of this company, was if you don’t sell us your shares
we will do all the things I just said including a discriminatory
tender offer. These are all publicly filed documents that this
court can take judicial notices. He had a choice. Either he was
going to be hit very very hard or accept what was being offered
to him for his shares. The board of directors as it turns out was
correct in valuing the company because a couple of months later
they told their own shareholders that they were willing to pay
them $98 a share, and indeed National Amusements announced
today in the newspapers they were willing to pay 100.

They made a business judgment. The judgment was that
Icahn in offering $75 dollars a share was making a bid that they
viewed as inadequate. In their business judgment they thought
the company was worth more. In this case they proved to be

correct by subsequent events. Somebody was willing to pay a
hundred dollars a share.

THE COURT: You know what you have just done, and it’s
understandable, you have just sealed my mind that though you
may prevail on the merits, it would not be appropriate to decide
the issue that you have presented on a Rule 10b-6 motion. That’s
where we are. Remember, we are not at a point where we have
just finished trying the case and your argument is that the plain-
tiff has not made out a case by a preponderance of the evidence.

A-44

The real question in my mind is do we have something to try,
and the answer in my judgment, based on what you just said
in response to my question, is yes, we do. You may be right, but
it seems to me that whether or not you are right has to go beyond
the face of any set of pleadings.

MR. BLOCK: Your Honor, if I can respectfully disagree.
THE COURT: You certainly can.

MR. BLOCK: This is not an issue of fact. This an issue of
law. The lawful activity, the lawful act to do something lawful
can’t be a violation a criminal statute, which is what your Honor
is saying you are ready to say can go beyond the motion to
dismiss. You cannot have legitimate commerce be extortion, and
that’s what you saying.

THE COURT: No, but you see what you have got. I get this
a lot and you may recall I get this usually at the conclusion of
the government's case in a criminal prosecution when the defense
gets up and argues for a dismissal. At that juncture I have to
invariably tell people — and you do it also in civil cases — that
at least at this stage of the litigation those reasonable inferences
which are to be drawn have to be drawn in favor of the plain-
tiff. You may come in with tremendous arguments that will per-
suade a jury: Mr. Icahn is a benefactor, or that his judgment
was terrible, he only took a $55 million profit when he could
have taken a hundred and maybe we should take up a collec-
tion for him. But isn’t that to be left for another day? That's
the real problem.

MR. BLOCK: Your Honor, you are expending the law and
in doing so you are opening the courts to anybody who has ever
engaged in two or more negotiations to be sued by an unhappy
adversary at the bargaining table for extortion or coercion in
the negotiating process.

Moreover, if in fact we are going to say on a motion to dismiss
in the RICO context that based on this thin reed we are going

A-45

to say discovery, in what they characterized as six from column
A and two from column B is appropriate, we are going to place
upon the defendants an enormous burden of cost and effort to
defend a case which, your Honor, I believe as a matter of law
should not survive this motion.

THE COURT: Let me put a question to Mr. Lowey. Based
on what Mr. Block has been saying concerning the present value
of the shares, would you kindly tell me what your client’s
damages are?

MR. LOWEY: Your Honor, the damages are calculated as of
the time of the greenmail. That’s point one.

THE COURT: Am not sure I agree with that, but let’s hear
your arguments.

MR. LOWEY: The damages at that time, let’s focus on that
time —

THE COURT: Did your client sell his stock?

MR. LOWEY: I’m sorry. I have misspoken and we are not
on the same wavelength.

THE COURT: I thought at the time of greenmail he sold his
stock.

MR. LOWEY: I answered the question as if my client was
part of the corporation. I want to make that clear. Our client
here is Viacom. This is a derivative action. Mr. Anderson is suing
on behalf of the corporation and so in answering your question,
my answer is —

THE COURT: Wait a minute. You have those security law
predicates that you were talking about before. You've got to be

A-46

a buyer or a seller, don’t you? The corporation can't own those
claims, am I not correct?

MR. LOWEY: A different issue but I will answer it surely,
your Honor. We are claiming — I want to fit the predicate, your
Honor’s question, into the whole scheme of things.

The predicate acts that we have alleged are specific prior
violations of the securities laws knowingly by Mr. Icahn which
are, by definition, predicate acts under 1961, that is, the RICO
statute. We start off with 1961. The RICO statute takes you in
different phases at the time. Your Honor’s question: What about
damages? and that comes under 1964.

So first we start off with 1961, what are the elements of a
RICO claim. And we take them element by element. One the
elements is you have to allege a —

THE COURT: There are seven constituent elements.
MR. LOWEY: Pattern of racketeering activity.

THE COURT: That the defendant through the commission
of two or more acts constituting a pattern of racketeering ac-
tivity directly or indirectly invests in or maintains an interest
in or participates in an erNerprise, the activities of which affect
interstate commerce’ That’s not me, that’s Moss v. Morgan
Stanley. The plaintiff also have to show that they were injured
by reason of the defendant's prohibited conduct, also coming
out of Moss v. Morgan Stanley, and specifically referring to
1964 C.

Now we start with that. Do you agree with my explication
so far

MR. LOWEY: Not quite. The reason I don’t agree is because
the injury that is being claimed is not an injury that comes by

A-47

the injured party from the predicate acts. That is not a sequence
of the statute, and it is quite clear that’s not the sequence of
the statute. It’s not the predicate acts that cause the injury. It’s
the predicate acts that give rise to the substantive violation.

One turns to Section 1964 which is entitled Civil Remedy to
Determine Who Can Claim Injury. The words of the statute
of 64 C, “Any person injured in his business or property by reason
of a violation of Section 1962” so one has to turn to Section 1962.
1962 has four component parts. Only three of them are involved
in this pleading.

The first violation of 1962 subsection A which is alleged in
this pleading is the use of the proceeds — I will be colloquial
rather than statutory, but the use of the proceeds of the prior
greenmail in the current greenmail. It’s the proceeds of the pat-
tern of racketeering activity that are being used here.

The subsection B of 1962 deals with the acquisition of an in-
terest in Viacom as part of a pattern of racketeering activity.
We claim, we allege that his acquisition of shares of Viacom
was part of a pattern of racketeering activity just as it was with
the other prior extortion racketeering pattern that we have
alleged in these other situations.

And subsection D is conspiracy. In order to be entitled to the
civil remedy provided by Section 1964 C, we have to show that
we have been injured, we meaning Viacom the corporation, in
this derivative action that Viacom was injured in its business
or property by reason of Icahn’s violation of Section 1962.

If we establish that, that because he had been engaging in
a pattern of racketeering activity and throughout that he made
an investment in Viacom and he then goes ahead with the
substantive violation in the Viacom situation, not part of the
prior pattern but here alleging a specific action of extortion
against Viacom, and they are damaged as a result of that, we
have satisfied the pleading requirements of the RICO statute.

a ee, ee ee

A-48

Your Honor is quite right to say that proof is another matter,
but we do not have to show, and specifically — my colleague
is pointing out to me quite correctly in response to answer your
Honor’s question about where’s damage, we do point out that
the F.A.S.B. accounting rules required Viacom, and Viacom did
take a $28 million charge against it’s current earnings for the
quarter ending June 30, 1986. That was required to be done.

THE COURT: I don’t think that answers my question.
MR. LOWEY: That goes to the point of what are the damages.

THE COURT: No, it doesn’t. That’s an accounting matter.
He may have gotten money from a company which had a
substantial intrinsic value which was cash poor and could have
and would have preferred to use its cash for other purposes and
was required to take this charge. But let me assume another set
of the facts.

It would be legitimate, as I see it, to pay Icahn what they
paid him if the directors were to say, we paid him more than
market but we knew that the corporation was worth more than
he was offering.

In that circumstance it seems to me the directors are respect-
ing rather than abrogating their duty to the shareholder when
they tell this fellow to go away and they pay him off to do so,
because in the context of that, thev have preserved the
shareholder to another day when the stock goes up.

I had a case years ago where I recall] that just because the
stock went up in value during the pendency of the litigation,
my claim went down the tubes.

I am troubled by this question of damage. Yes, they paid more
than market, and | think if your man had sold out and then
the price of the shares had gone one way or the other, he might
have had an argument. But he held on.

A-49

He is there really suing derivatively on behalf of the corpora-
tion. But what is the corporation? The corporation is the sum
of the shareholders. And it seems it me if the sum of the
shareholders have actually benefited by the stock going up
beyond what Icahn got, beyond what Icahn offered, there may
be a serious question of liability but no damages.

MR. LOWEY: May I respond to that. I think I can supply
the necessary ingredient between the premises of your argument
and the conclusion for your argument. That ingredient is
something that your Honor deals with in every tort case that
your Honor handles. That is the ingredient of proximate cause.

You are missing something here. Let me give you the opposite
hypothetical. at the end of May, management of Viacom, direc-
tors of Viacom pay a premium over market, substantial premium
over market, to Icahn and at that particular point in time there's
no question that the market.could ever give him that and he
has come out with a premium. Within the next few days
something terrible happens at Viacom. The FCC establishes a
new rule that you can only have one television station or cable
station, or worse yet, Bill Cosby gets arrested for a morals viola-
tion or something like that and the entire value, the Bill Cosby
series has to be taken off the air. The point is: intervening events.

I am suggesting to your Honor that what happened subse-
quently, like the investment of Mr. Redstone who is the person
who is now making this bid that we are reading about in the
paper, is an intervening event. It is something that happened
subsequent to the events we are dealing with here and it is not
an event that is related to, for purposes of calculating damages,
Mr. Icahn’s situation.

THE COURT: I am not persuaded, let’s put it that way. Let
me get back and maybe I will help you if I get back on to Mr.
Block. Mr. Block, can you favor me with any square holdings
that what has been characterized here as greenmai! is per se

lawful?

A-50

MR. BLOCK: Yes. I think, your Honor, that the Fourth Cir-
cuit and I'll read to you a paragraph from the decision in Dan
River: “Plaintiff likens ultimatum to an extortionate threat but
we fail to appreciate the supposed similarity. Icahn does put
a corporation’s management to a difficult choice: Accede to a
takeover or employ defensive moves but so does any party who
altogether lawfully contempt plates a takeover attempt.”

That case is on all fours with this case on the question of
greenmail.

If I could go back to Capo, it is a case that Judge Kearse wrote
the opinion on.

THE COURT: Let’s stay with Dan River for just a moment.

The case as I read it really only holds that the plaintiff's com-
plaint did not justify injunctive relief under the securities laws
and what you have read really does not solve the problem. The
RICO claim foundered on the predicate offenses of an invest-
ment company Icahn controlled and previous greenmail offenses.
The court concluded, and I would quote, “There are just too
many flaws and too much speculation” and that’s at Page 290
of Dan River. So I do not feel that Dan River, much as you would
like it to, stands for the proposition that greenmail is per se
lawful. Now you're back to Capo. I just thought should leave
you with that with that comforting thought.

MR. BLOCK: I would like to disagree. The court in Dan River
did deny a preliminary injunction but it denied it because there
was no likelihood of success on the merits. The language I read
to your Honor at least with respect to the allegation of green-
mail —

THE COURT: It would have been helpful if they sua sponte
dismissed. What happened after the denial of injunction, if you
know?

aaa

A-51

MR. BLOCK: In all of those cases that’s the end of it. The
company’s employees did an employee ESOP and that was the
end of it. There are a slew of cases in New York, Delaware and
elsewhere that hold in essence that the purchasing of stock by
a corporation, a target of a repurchase, not the word greenmail,
is perfectly lawful and totally within the discretion of the board
of directors of the public company. I cite Lewis v. Daum in
Delaware and there is a slew of cases in New York. I would be
happy to supply your Honor with the names.

My colleague says Pollack v. Delaware. There are a whole
bunch of cases which hold that a corporation in dealing with
its own stock including lat has been called greenmail is perfectly
legal. The issue sometimes comes up —

THE COURT: I wouldn’t argue that general proposition deal-
ing in its own stock. There are numerous companies which
presently are repurchasing stock. I may disagree with their
economic theory, and it has been discussed in economic jour-
nais, but that’s perfectly legal. I don’t think that’s getting me
where I want to go.

MR. BLOCK: That's all you are dealing with in this particular
case.

THE COURT: No, it isn’t. Purchasing in the market is one
thing; purchasing from an individual with the reputation of your
client, for a premium, is something else.

MR. BLOCK: Let me deal with both of those issues. First,
your Honor, when I said targeted repurchases that means ex-
actly greenmail, purchasing from a specific individual at a price
significantly above the market price. There are no less than ten
cases that say that that’s perfectly within the discretion of the
board of directors of a public corporation and there are none,
with the possible, possible exception of the Goodrich case, on
the legal issue whether the demand was appropriate that might
be said to go the other way. And I am not sure it goes the other
way.

A-52

Secondly, it is unfair to talk about the reputation of my client.
What has been alleged in the complaint here was that because
it was Mr. Icahn there was fear. Fear of what? What has Mr.
Icahn done? He has acquired two very large public corpora-
tions TWA and ACF. Both public, both in excess of a billion
dollars in capitalization. Mr. Icahn has at least on six other oc-
casions purchased stock. His reputation is he sold the stock back.
There was a contest. Management that said we don’t want to
sell this company, we want to stay independent.

What’s the fear created by Mr. Icahn’s reputation? What is
the connection? What is this reputation? Supposedly, according
to this complaint because we are only dealing with the com-
pleted transaction in the complaint, that they say is Mr. Icahn’s
reputation? Takeovers are a perfectly legitimate activity. If in
fact Mr. Icahn succeeded with the complaint and was successful
and if in fact some of those people lost some of their jobs, which
is possible, and in some cases it doesn’t happen, is that il-
legitimate economic activity? Of course it is not. His reputa-
tion for what? To me the pleading on its face is insufficient when
it says fears are created by Mr. Icahn’s reputation. Reputation
to be bought out? Why would that concern him. This would
make them happy if he goes away.

Reputation to do what? What they are really saying is the
reputation to acquire companies and get rid of certain manage-
ment people. Your Honor, that’s capitalism. That is what has
happened in America in the last ten years. Companies have been
acquired by different managers and certain economic changes
in those companies have taken place.

THE COURT: The actual acquisition? The actual takeover
creates no problems.

The fear of a takeover, the crying of wolf, if that’s what it
is, creates the problem. You gave me a whole hatful of cases a
few moments ago and I was curious when you said there were
so many out there, if those cases concern premiums for control.

A-53

MR. BLOCK: Yes, in every one of them that’s the issue. I
would be happy to submit that and I will do it tomorrow
morning.

THE COURT: I have thought so. I would like to get those
from you because certainly they are significant. I that’s what
you said but I wasn’t sure. I want to go back. If you just would

send your adversary a copy. I should like to see those and study
them.

I think I interrupted you before when you were talking about
Capo.

MR. BLOCK: I will be brief and I know it is late. The Capo
case deals with an individual charge by a corporation, Kodak,
with responsibility. His responsibility was to hire people. What
Mr. Capo did, he was an entrepreneur. He decided he wouldn't
hire anyone who didn’t pay him some special amount of money.
He took, in essence, a bribe. He received something he was not
entitled to and he illegitimately — this is sort of like the insider
trading cases, the misappropriation theory. He violated his
responsibility of trust to the Kodak Corporation. Kodak didn’t
hire Capo and say go hire some people and, by the way, if you
can make a couple of bucks on the side, please do that. They
said your job in personnel was to hire. He did something im-
proper. That is the distinguishing fact in Capo.

If you look at the Supreme Court’s decision on U.S. v. Ed-
monds it is right on point. Some crazy union person, similar
to what happened in the tragedy in Puerto Rico, took a gun
and shot and blew up corporate property. He did it in order,
like Joe Morris wanted a better deal, wanted more salary. The
Supreme Court of the United States said that he may have
violated a whole bunch of other laws but that was not extor-
tion because it was perfectly lawful for him to want to desire
to get the most money he could get for his services. Just as Mr.
Icahn would have an absolute right to get the most money he
could get for his share of securities.

A-54

Your Honor, I suggest to you that the firing of the gun, the
exploding of a plant, the possible killing or maiming of in-
dividuals is a very, very serious unlawful act. The Supreme Court
of the United States in I guess 1984 held that those facts do not
constitute extortion. I prevail upon this court, you cannot say
that negotiation between two parties where one may be per-
ceived to have more leverage than the other will constitute ex-
tortion. You will open up the court to almost a floodgate of litiga-
tions dealing with people who negotiate amongst themselves.

I think the distinguishing fact in Capo and all the other cases
that do find extortion is that something improper is being done.
Money is being taken in bribery. It’s the union leader who says,
I have a right to picket, but if you pay me a couple of bucks
under the table I will remove the picketing. Those are the ex-
tortion cases. Your Honor, this is a perfectly litigate economic
activity. The sale of stock, whether it is purchased by the com-
pany or anybody else, is a choice, as the Fourth Circuit said,
that the directors made in their business judgment. What is it
worth to them.

THE COURT: Extortion usually, you are saying, is a side pay-
ment, usually cash under the table.

MR. BLOCK: Inconsistent with your obligation — it’s like
the misappropriation cases. If you look at Judge Pollack’s re-
cent decision. You have an assignment from your employer and
you are doing X but you do X plus Y. You go beyond what your
right and your role is and you take something special for yourself.
You in essence have violated that trust to the employer on whose
behalf you are operating. That’s are what those cases say. That’s
the theory.

THE COURT: Let me ask this. I would like to come back
for a moment to Judge Walker’s decision. We deal with them
here, the aiding and abetting cases. Is there a fair agrument to
be made based on Judge Walker’s decision that there could be
a charge leveled against your client that he aided and abetted
the directors in violating their fiduciary duty to the stockholders?

A-55

MR. BLOCK: First you would you have to have an allega-
tion that the board of directors of this company breached its
fiduciary duty and then I think it is perfectly consistent with
Judge Walker’s decision to say that my client, or to allege that
my client aided and abetted that breach of fiduciary duty. Your
Honor, 196] doesn’t list aiding and abetting, breaches of
fiduciary duty as a predicate crime for RICO. It has to be an
indictable offense. I suggest to your Honor that there has never
been an indictment in this country for greenmail. Never, ever,
ever, ever.

THE COURT: Let’s ask Mr. Lowey the question as to whether
he makes that argument in this case, that there was a breach
of fiduciary duty by the directors of Viacom which Mr. Icahn

aided and abetted.

MR. LOWEY: We do not make it in this case. That is precisely
the claim that is being made in the Supreme Court action but
not in this case.

THE COURT: That gets me to this. What are we doing? Are
there two parallel cases? And, if so, why?

MR. LOWEY: Surely. The answer is there are two cases but
they are not parallel. The Supreme Court action is an action
that deals with the leveraged buyout transaction, which is
another situation, in addition to the Icahn greenmail transac-
tion. It encompasses both transactions. And in encompassing
both transactions it does make allegations of breach of fiduciary
duties in connection with both transactions and it does make
allegations that Icahn aided and abetted in the earlier one. That
is, in the greenmail one.

THE COURT: Why shouldn't this case, then, which covers
less ground, be stayed pending the outcome of the state court
action which covers more ground?

MR. LOWEY: They are totally independent claims. Let me
try to put in focus the elements here. This action was started

a ae

A-56

in May of this year. The state court action was started in
September. This action does not raise fiduciary duty claims at
all. It is strictly a Federal action. We did not append state law
claims here.

THE COURT: You have no pendent claims, I recognize that.

MR. LOWEY: By reason of subsequent events which occurred
after the events with which this lawsuit deals, a state law ac-
tion was commenced. The state law action raises violations of
state law which are independent and not related to the RICO
claims here. We don’t claim to answer your Honor’s question.
We don’t claim that those are predicate acts. Mr. Block has
argued, and he is right, I completely agree with Mr. Block, there
is no basis for alleging that a breach of fiduciary duty which
is a violation of an equitable obligation gives rise to an indict-
able offense under 1961. He is right about that and we don't
claim it. So breach of fiduciary duty is really not an element
of the RICO claims here at all.

But what is happening in the Supreme Court is there have
been claims made for state law violations. Different laws are
involved. The RICO claims are not at all dispositive of the claims
in the state court or vice versa. Either case could win or lose
by either party totally independent. The one does not depend
upon the outcome of the other, so they are really separate and
independent claims.

If I may, your Honor, address a couple of points. Have I
satisfied your Honor’s question on that? I would be glad to pur-
sue it further.

THE COURT: The hour is late and I don’t think it would
serve much purpose to speak further.

MR. LOWEY: The state court claim involves other issues,
other factors. The Icahn greenmail is part of it, but only

fiduciary claims are made there and they are independent. May
I also add that I’m sure that Mr. Block will defend those

A-57

vigorously there as he is defending here. He may stand before
your Honor and say, well, sure they can go across the street, why
do we need to be here? When he gets across the treat he will
be making quite a different argument. He will be not so ready
to concede that his client would be willing to admit to breaching
fiduciary duty.

I would like to come back to the Hobbs Act which is before
your Honor today. Let me talk about what Mr. Block insists is
the distinction between our claims and these other cases.

He is willing to admit that labor racketeers are guilty of ex-
tortion, that is, thugs and mobsters, but not model corporate
citizens, people that have never been put in jai! for committing
crimes. Those people can’t commit extortion. If you are a pur-
chaser of large amounts of stock, if you are a corporate raider,
that’s not criminal.

Well, the statute doesn’t make that distinction. Specifically,
the Culvert case, United States Supreme Court in interpreting
the Hobbs Act says you don’t have to be a racketeer to be guilty
of the Hobbs Act. The United States Supreme Court has made
that specific distinction.

Mr. Block would like that distinction to be made, and if not
made on the law at least the suggestion that this is really what
we are talking about when we are talking about Hobbs Act, talk-
ing about thugs and hoods. Not so, Mr. Block. The Supreme
Court says that.

The question is, what is the effect of people like Mr. Icahn
in the financial community? What do his peers think of the
activities?

THE COURT: That is irrelevant. This is not a popularity con-
test. Let me just put this to you. This so called greenmail has
been well known now for four or five years. The U.S. Attorney
in this district, and I am sure in many others, is aware of both

RICO and the Hobbs Act.

A-58

Can you note any prosecutions of people who have acquired
the reputation of Mr. Icahn, and, if I may say so, three or four
other individuals who at least bear a similar reputation, in-
cluding Mr. Pickens, I suppose and Mr. Goldsmith — he’s not a
mister, I guess he’s a sir— and a few others?

MR. LOWEY: Your Honor, I was waiting for that question.
Because my answer to the question is of course there has been
no prosecution yet. The followup question is why not, and let
me answer that.

Specifically in this circuit, Sedima has made clear two vital
interpretations of RICO. Number one, you don’t have to have
a racketeering injury, and, number two, the predicate acts need
not have resulted in criminal convictions.

Prior to Sedima the United States Attorney in this district,
under this circuit’s interpretation of RICO, could not have in-
dicted and convicted Mr. Icahn, had he been so motivated, under
existing law. Now, since Sedima, which is 1985, less than two
years old, it is now clear from the Supreme Court that Mr. Icahn,
who has not been convicted of a crime, but if he has commit-
ted an indictable offense he is subject to such indictment. It
hasn’t happened yet. It has not happened to any of the raiders
yet. There has been no prosecution since 1985 of any greenmail.

As your Honor points out, greenmail is a relatively new
phenomenon in terms of the magnitude of the problem in the
financial community. Let me say it has not gone unnoticed by
commentators in courts either. If I may —

THE COURT: No, don’t, the hour is too late, you are off the
track. I think I have your point. I think I have one or two more
questions for Mr. Block and then maybe we will suspend.

Mr. Block, the aiding and abetting would go to characteriz-
ing the premium as one to which Icahn is entitled. If he is not
so entitled, the payment results from extortion which would be
the predicate offense and therefore indictable and a RICO claim,
would it not?

A-59

MR. BLOCK: We have substantial disagreement on that. The
violation would be a breach of fiduciary duty, a waste of the
corporate assets by the corporate nondefendants, the board of
directors, and if in fact they violated their fiduciary duty there
is case law that says we could be charged, if the facts demonstrate
it, with aiding and abetting and breach of fiduciary duty. That’s
the current state case as it that exists.

I have a complaint, I would like to hand it up, it is going to
parallel at this time and we are being asked in essence to de-
fend exactly the same case in two different courts in two dif-
ferent places. The answer is it is not extortion, but it is breach
of fiduciary duty by the board of directors and waste of the cor-
poration’s assets and possible allegations of aiding and abetting.

THE COURT: Not a state crime either?

MR. BLOCK: No. I hear Sedima is two years old. What did
Sedima say? It said RICO should be read broadly. It didn’t say
that the predicate crime such as the Hobbs Act or the New York
Penal Code shouid be read broadly. Indeed we construe our
criminal statutes rather narrowly. Sedima does nothing to say
that. That’s not to say that your Honor should be the first to
extend the Hobbs Act or the New York Penal act to say a breach
of fiduciary duty by a board of directors and the possibly aiding
and abetting and breach of fiduciary duty should be extortion.

THE COURT: I have two more questions for you and then ~
each of you can have a minute to sum up. I gather it hasn’t been
touched upon but I gather there is no real argument concern-
ing the adequacy of the plaintiff, assuming he complies with
all the technicalities to represent the shareholders?

MR. BLOCK: Your Honor, we moved on that basis prior to
the action being instituted in state court. We said in our mo-
tion to dismiss that these very plaintiffs are prejudicing the rights
of their own class by not suing the people who would be primari-
ly responsible, the board of directors. They have now, subsequent
to the filing of our motion, gone to state court with the same

——————————————

A-60

claim. So we are not now saying that what they are doing is
not in the best interests of shareholders. What we are saying
now is they are doing it in a duplicative fashion.

THE COURT: Not adequate, overly zealous.

MR. BLOCK: Whether they are overly zealous or perfectly
adequate we are not disputing. What we are saying is unfair
to us is to have to defend the same allegations. Even though they
have a different tag on those allegations, they call it aiding and
abetting, fiduciary duties in the state court and RICO here in
the Federal court, it is the same claim and we are being forced
to defend it in two separate places.

THE COURT: Do you have a grievance by virtue of the fact
that they chose not to name the board of directors here in Federal
court?

MR. BLOCK: I think they played fast and loose with your
Honor.

THE COURT: It is troublesome, I will say that. I will ask
for a response when you are finished.

MR. BLOCK: They said to themselves, they read the law, they
understand that in order to get by the demand requirement,
your Honor, your decision today notwithstanding, if they sued
the directors that would be a problem. By not suing the direc-
tors they assume that maybe the directors— and maybe they
talked about it beforehand, maybe the directors did not move
to dismiss this action based on the business judgment rule. After
we moved on that very ground, then they went into state court
and sued the directors as well. I believe they are playing very
fast and loose with this court.

THE COURT: Let me ask Mr. Lowey why he didn’t sue them
and now that he has sued them why he hasn’t sought to join
them here.

A-61

MR. LOWEY: Your Honor, we targeted a case based upon
the Hobbs Act which we believe the time as has come based upon
Sedima and development of the Hobbs Act, including Capo, we
wanted to present a clean issue to your Honor—not to your
Honor because we didn’t know who the wheel would get. But
we filed a complaint and your Honor lucked out and your Honor
now has the issue to determine which is, we recognize, an issue
of first impression. It is not novel. Iis time has come for a
decision.

1 will not burden anyone in this court with some recitation
of learned scholarly views on the matter. But the point is I would
love to claim creativity in this area. I would like to claim that
I woke up one morning wi-h this brilliant idea. But not so. This
is a case that was ready to be brought. And rather than en-
cumbering it with state law pendent claims, breach of fiduciary
duty claims, all of which by the way are not easy to win, I have
been in such cases before. There is, after all, the Goodrich case
in this court.

Judge Walker has sustained a complaint indeed, but there has
been no judgment yet at trial. So alleging a breach of fiduciary
duty claim and an aiding and abetting claim one is met with
the business judgment rule. I needn’t tell your Honor. Your Honor
has alluded to it. In Delaware, actions of this kind are regular-
ly met with the business judgment rule and very little is left with
them absent extreme circumstances.

So it is not a clear shot for a plaintiff to come into court in
a greenmail situation and allege breach of fiduciary duty aiding
and abetting. Mr. Block can pull the cases right out of his brief
case in which those claims have been dismissed on busin__» judg-

ment grounds.

What we chose to do here, not to say that we wouldn't await
a Judge Walker-type decision and we do believe that the tenden-
cy of the law ought to be in that direction, recognizing that
business judgment does not apply in these extreme situations,
these fights for survival. These are not normal decisions of

A-62

management, but we didn’t want to have all that in this court
in this complaint. We wanted to present the Hobbs Act issue.
We believe we are right. We believe the fact that nobody has
said it yet only shows that greenmail is relatively new. RICO
only goes back to 1970. It was not tested very much in the early
years.

The Hobbs Act goes back to 1940 but everybody thought of
it in terms of labor racketeering cases so the law has been
developed quite clearly to a point where if the shoe fits, let’s
try it on. And it does fit here and we submit that certainly — I
will go beyond the complaint stage just for a moment because
Mr. Block took some liberties with some deposition transcripts.
I do want you to know it fits within the facts as we see them.
We aren’t just being technical. We do believe there is strong
evidence to show what Mr. Icahn’s intent really was here and
we do fully intend to pursue this case to trial.

Again, we believe that Mr. Block will have an opportunity
at some point on full record to test out whether or not the Hobbs
Act applies to an outstanding eorporate citizen as well as to a
labor racketeer. But let’s see what the facts are before we test
that one upstairs.

Here on this complaint we believe that we are presenting the
court with a clean legal issue. We did not wish to give a kitchen
sink-type of complaint for the court to deal with here. And that
is why we thought better when circumstances arose later — and
it wasn’t because of Mr. Block. I would not give him credit for
forcing us to go to the state court with this complaint. The oc-
casion arose in another context and that is the leveraged buyout
context which is also the subject of the state court action for
us to do that.

So I would suggest there is only one more matter I want to
bring to the court’s attention.

THE COURT: Bring it swiftly because the hour is late. You
have one minute to bring it to my attention. Mr. Block, you will
have two minutes to respond.

A-63

MR. LOWEY: One case which we have not put into our brief,
and that is the argument that Mr. Block mentions that RICO
does not permit us to seek injuctive or injuctive relief. We didn’t
answer that argument in our brief. I want to give the court a
case of Judge Pratt’s when he was sitting as a district judge in
the Eastern District granted an injunction in a RICO civil case
and said that he did not read Section 1964 to exclude injuctive
relief where appropriate in other circumstances.

THE COURT: How is it appropriate here?

MR. LOWEY: Only because Mr. Block has moved to strike
as part of his motions certain allegations.

THE COURT: Why do you want to maintain, as I under-
stand it if you do want to maintain, any claim for anything other
than money damages?

MR. LOWEY: I don’t, except for the fact —
THE COURT: Then I think we ought to clean up the act.

MR. LOWEY: I will be glad —I regard it as a nonissue at the
moment, absolutely. But if it is stricken I would not want this
to be regarded as with prejudice in some other situation that
may arise.

THE COURT: Injuctive relief shouldn’t be sought after the
fact, and frankly, if new facts and circumstances arise in the
future which dictate injuctive relief you would not be, in my
judgment, bound by some doctrine and be barred from assert-
ing the claim in the future. I must say I did not think that that
particularly belonged here and I still don’t. ;

I think you fellows may wish to clean up some loose ends in
this case, otherwise we are going to have problems as the

discovery proceeds.

A-64

I think you have covered your points. I will say to you so that
Mr. Block will have-a chance to speak, that as I sit here now,
although I did not necessarily subscribe to the proposition you
have a winning case, I think that your case is sufficient not on-
ly to withstand a 12b-6 motion for total dismissal but also prob-
ably at least at this juncture to withstand a summary judgment
motion, and therefore I would be disposed to suggest that it
would be appropriate to proceed to some reasonable discovery
here, perhaps on an expedited basis, and to resolve this ques-
tion on its merits. One of the questions really, at least in my
mind as I sit here now, relates to Mr. Icahn’s intent.

It seems to me that if he intended a takeover and decided for
good and sufficient business reasons to take a premium for his
stock, in my judgment he should not be held liable in this
lawsuit. On the other hand, if it was his intent to obtain money
from this corporation by means which I would characterize as
extortionate, then I suggest that there may well be merit to the
RICO claim as far as liability is concerned.

I have lots of questions concerning damages. All right, Mr.
Block.

MR. KREINDLER: Could I have 30 seconds?

MR. LOWEY: I promised Mr. Kreindler that I would in-
troduce him and I neglected to. Peter Kreindler is a member
of the firm Hughes Hubbard & Reed. He is in their Washington
office. He is a member of the bar of the District of Columbia,
also a member of the bar of the Second Circuit. He informed
me just before the proceedings began this afternoon that he has
never been admitted in this court and I promised to move his
admission and do so now at this time.

THE COURT: That motion is granted.

MR. KREINDLER: Thank you. If I may impose for just 30
seconds. I represent the company, Viacom International, the
nominal defendant in this case. I also represent the outside

a i
| :

creditors of the company. Lest there be no misunderstanding,
and I think it is clear from our answer, it is the position of the
company represented in this case by the board of directors that
the acts of the board were completely lawful and were taken
in the best interests of the company and were designed at every
step of the way, going back to the rights plan that Mr. Block
has referred to and the payment for the purchase of Mr. Icahn’s
shares which is the subject of this action that all of those ac-
tions were taken by the directors to maximize the value for the
shareholders.

I think as Mr. Block points out, the fact that there are cur-
rently offers being made for the company at approximately $95
and $96 a share bears out the fact that the directors’ actions
were taken in the best interests of the shareholders.

THE COURT: Let me stay with you for one moment. Assume
a worse case scenario of liability. What if any damages would
have been proximately caused by the alleged wrongdoing?

MR. KREINDLER: Your Honor, I can say this. The decision
by the board of directors to purchase Mr. Icahn’s shares was
based upon advice of independent investment bankers that the
company’s intrinsic value at that time was between $80 and $100
a share.

THE COURT: Is that advice in written form?

MR. KREINDLER: Yes, it is and it is incorporated into the
minutes of the board of directors and it’s part of the discovery
that has been made available to plaintiffs in this action. Your
Honor, I can’t testify here, I can only say what has happened
to date. What’s happened to date is that the company has now
received two offers, one of which has been valued at approx-
imately $94 a share, the other one has not been valued yet but
there have been public reports that its value is higher. Those
offers have been received by the special committee of the board
of directors and I just wanted to make sure that there was no
misunderstanding on the record that the verified answer that

A-66

the company has put in here which states that the actions were
taken by the board here and what they perceived to be the best
interests of the shareholders, that there is no mistake about that.

THE COURT: Incidentally, since you have risen to speak, I
guess you may wish to comment about the fact that you did
not join in the motion or assert the lack of a demand on the
corporation.

MR. KREINDLER: Your Honor, I think that in part relates
to the status of the state court litigation. Your Honor should
understand that, contrary to the statement that the directors
were not sued until after this case was brought, at the same time
that this case was brought there were state court actions brought
alleging a breach of fiduciary duty and charging Mr. Icahn with
aiding and abetting that breach of fiduciary duty. Those state
court actions have not been prosecuted to date.

Subsequent to the announcement of the management buyout
there was a new state court action brought in which allegation
relating to the management buyout and allegations relating to
the greenmail payment were made. But it is incorrect to state
that the directors were not sued prior to the most recent suit
brought in state court relating to the buyout. The directors were
sued originally at the same time that this case was brought in
this court.

Your Honor, the directors were advised by counsel of the op-
tions available to them in defending the state court actions and
the options available to the company in responding to this ac-
tion, and the decision of the board of directors is duly noted
in our verified answer and that is that counsel for the company
were directed to file the answer, as your Honor has it before you.

I will note one further thing, your Honor, the question about
why the directors were not joined as defendants in this case.
There is no basis under Federal law for the alleged victim of
an extortion to be charged as a co-conspirator with the person
who engages in the extortion.

A-67

THE COURT: Yes, I think that’s a very valid point. In the
extortion situation as opposed to the bribe situation, you are
the victim.

MR. KREINDLER: Yes. So I am not here, your Honor, to
take the position on whether or not the complaint states a claim.
The directors of the company directed us to file the answer that
we filed and I leave that to Mr. Lowey on behalf of the com-
pany as it were, but nevertheless a lawyer for one of shareholders,
and Mr. Block to argue. I do not think the directors could pro-
perly be made a party to this action and obviously will vigorously
defend the state court action.

MR. BLOCK: If I might. I would like to make what I believe
would be helpful suggestions. I believe if your Honor decides
the case you would decide it as a case of first impression and
I would like you certify one, that the demand issue was on both
the directors and the shareholders and, two, the extortion issue
on RICO. I think this is something the Second Circuit should
hear before you put my client to the expense and aggravation
of what is a frivolous action. Mr. Kreindler points out that the
stock is worth in the high 80s. My client’s calculation were sup-
plied in that case as well and we always thought the stock was
valued or worth something in the 80s when we bid 75 and sold
it out for s

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385010_2263%3A2. Public record. Not legal advice.