-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DXEOZPM2Bf+smRKC/HTQ+NhBJWa8qbJ8VmKTz/20onDSBg0WDmt1ot42xbzG8pJv 7U6+tpk34aboi1VGVw4nxQ== 0000895345-98-000326.txt : 19980518 0000895345-98-000326.hdr.sgml : 19980518 ACCESSION NUMBER: 0000895345-98-000326 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19980515 SROS: NYSE SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: FIRST UNION REAL ESTATE EQUITY & MORTGAGE INVESTMENTS CENTRAL INDEX KEY: 0000037008 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 346513657 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: SEC FILE NUMBER: 005-19676 FILM NUMBER: 98626581 BUSINESS ADDRESS: STREET 1: 55 PUBLIC SQUARE STREET 2: STE 1900 CITY: CLEVELAND STATE: OH ZIP: 44113 BUSINESS PHONE: 2167814030 MAIL ADDRESS: STREET 1: 55 PUBLIC SQUARE SUITE 1910 CITY: CLEVELAND STATE: OH ZIP: 44113 FORMER COMPANY: FORMER CONFORMED NAME: FIRST UNION REALTY DATE OF NAME CHANGE: 19691012 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: GOTHAM PARTNERS LP /NY/ CENTRAL INDEX KEY: 0000899983 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 363593298 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 110 EAST 42ND ST 18TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2122860300 MAIL ADDRESS: STREET 1: 110 EAST 42 ND ST 18TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10017 SC 13D/A 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13D UNDER THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. 29) First Union Real Estate Equity and Mortgage Investments - ------------------------------------------------------------------------------- (Name of Issuer) Shares of Beneficial Interest, $1.00 par value - ------------------------------------------------------------------------------- (Title of Class of Securities) 337400105 ---------------------------------- (CUSIP Number) Stephen Fraidin, P.C. Fried, Frank, Harris, Shriver & Jacobson One New York Plaza New York, New York 10004 (212) 859-8140 - ------------------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) May 14, 1998 ---------------------------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box |_|. Check the following box if a fee is being paid with the statement |_|. (A fee is not required only if the reporting person: (1) has a previous statement on file reporting beneficial ownership of more than five percent of the class of securities described in Item 1; and (2) has filed no amendment subsequent thereto reporting beneficial ownership of five percent or less of such class.) (See Rule 13d-7.) NOTE: Six copies of this statement, including all exhibits, should be filed with the Commission. See Rule 13d-1(a) for other parties to whom copies are to be sent. *The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). SCHEDULE 13D CUSIP No. 337400105 Page 2 of 8 Pages 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS Gotham Partners, L.P. 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X] (b) [ ] 3 SEC USE ONLY 4 SOURCE OF FUNDS* WC 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] 6 CITIZENSHIP OR PLACE OF ORGANIZATION New York, U.S.A. NUMBER OF 7 SOLE VOTING POWER SHARES 2,601,951 Shares BENEFICIALLY 8 SHARED VOTING POWER OWNED BY EACH 0 REPORTING 9 SOLE DISPOSITIVE POWER PERSON WITH 2,601,951 Shares 10 SHARED DISPOSITIVE POWER 0 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 2,601,951 Shares 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) [ ] EXCLUDES CERTAIN SHARES* 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 8.23% 14 TYPE OF REPORTING PERSON* PN *SEE INSTRUCTIONS SCHEDULE 13D CUSIP No. 337400105 Page 3 of 8 Pages 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS Gotham Partners II, L.P. 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X] (b) [ ] 3 SEC USE ONLY 4 SOURCE OF FUNDS* WC 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] 6 CITIZENSHIP OR PLACE OF ORGANIZATION New York, U.S.A. NUMBER OF 7 SOLE VOTING POWER SHARES 30,449 Shares BENEFICIALLY 8 SHARED VOTING POWER OWNED BY EACH 0 REPORTING 9 SOLE DISPOSITIVE POWER PERSON WITH 30,449 Shares 10 SHARED DISPOSITIVE POWER 0 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 30,449 Shares 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) [ ] EXCLUDES CERTAIN SHARES* 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 0.10% 14 TYPE OF REPORTING PERSON* PN *SEE INSTRUCTIONS SCHEDULE 13D CUSIP No. 337400105 Page 4 of 8 Pages 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS Gotham International Advisors, L.L.C. 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X] (b) [ ] 3 SEC USE ONLY 4 SOURCE OF FUNDS* WC 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware NUMBER OF 7 SOLE VOTING POWER SHARES 415,400 Shares BENEFICIALLY 8 SHARED VOTING POWER OWNED BY EACH 0 REPORTING 9 SOLE DISPOSITIVE POWER PERSON WITH 415,400 Shares 10 SHARED DISPOSITIVE POWER 0 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 415,400 Shares 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) [ ] EXCLUDES CERTAIN SHARES* 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 1.31% 14 TYPE OF REPORTING PERSON* 00; IA *SEE INSTRUCTIONS This Amendment No. 29 amends and supplements the Statement on Schedule 13D (the "Schedule 13D") relating to the shares of Beneficial Interest, par value $1.00 per share (the "Shares"), of First Union Real Estate Equity and Mortgage Investments, an Ohio business trust (the "Registrant"), previously filed by Gotham Partners, L.P. ("Gotham"), Gotham Partners II, L.P. ("Gotham II"), both New York limited partnerships, and Gotham International Advisors, L.L.C., a Delaware limited liability company ("Gotham Advisors" and, together with Gotham and Gotham II, the "Reporting Persons"). Capitalized terms used and not defined in this Amendment have the meanings set forth in the Schedule 13D. Except as specifically provided herein, this Amendment does not modify any of the information previously reported on the Schedule 13D. Item 4 is hereby amended to add the following information: "Item 4. Purpose of the Transaction On May 14, 1997, Gotham and Gotham II filed with the Court of Common Pleas a motion seeking a preliminary injunction requiring the Registrant (and its trustees, among others) to present Gotham's proposal and nominations at the Special Meeting and to recognize at that meeting the vote of Shares beneficially owned by the Reporting Persons. A copy of such motion and the supporting brief are attached as Exhibit 51 hereto and incorporated herein by this reference. Gotham and Gotham II also sought the Registrant's compliance with a set of written procedures previously tendered by Gotham to the Registrant concerning the conduct of the Special Meeting. The Registrant opposed the motion and filed a cross-motion for sanctions. A copy of the Registrant's filing is attached as Exhibit 52 hereto and incorporated herein by this reference. At a conference before the Court on the afternoon of May 14, however, the Registrant orally assured the Court and Gotham and Gotham II's counsel that it would not seek to prevent Gotham's proposal and nominations from being presented and voted on at the Special Meeting and that the Reporting Persons would be permitted to vote the Shares beneficially owned by the Reporting Persons on the record date. In light of this, the Court did not rule on Gotham and Gotham II's motion. In addition, counsel to Gotham and Gotham II requested orally at the conference that the Court enter an order to prevent the destruction of documents by the Registrant or its counsel. The Registrant and its counsel refused to consent to such an order. The Court did not rule on this request. On May 14, 1998, Gotham provided to the Ohio Division of Securities certain information and materials the Division had requested pursuant to an inquiry relating to Section 1707.041 of the Ohio Securities Act. The statute provides that certain materials must be filed with the Division before a "control bid" by a tender offer or a request or invitation for tenders for certain companies with an Ohio nexus. A "control bid" is defined to include the purchase of, or any offer to purchase, any security of a subject company by an offeror from Ohio residents when the offeror will be the direct or indirect beneficial owner of 10% or more of any class of stock of the subject company. Gotham indicated in its response to the Division that the statute did not apply to Gotham's interest in the Company because, among other things, Gotham and its affiliates do not own, and have not made offers to purchase, 10% or more of the Shares or any other class of the Company's securities." Item 7 is hereby amended to add the following information: "Item 7. Material to be Filed as Exhibits 51. Defendants' Motion for Preliminary Injunction and Brief in Support of Preliminary Injuntion filed in the Court of Common Pleas, Cuyahoga County, Ohio on May 14, 1998. 52. First Union's Motion for Sanctions and Brief in Opposition to Gotham's Motion for Preliminary Injunction filed in the Court of Common Pleas, Cuyahoga County, Ohio on May 14, 1998." After reasonable inquiry and to the best of our knowledge and belief, the undersigned certify that the information set forth in this statement is true, complete and correct. May 15, 1998 GOTHAM PARTNERS, L.P. By: Section H Partners, L.P., its general partner By: Karenina Corporation, a general partner of Section H Partners, L.P. By: /s/ William A. Ackman ------------------------ William A. Ackman President By: DPB Corporation, a general partner of Section H Partners, L.P. By: /s/ David P. Berkowitz ------------------------ David P. Berkowitz President GOTHAM PARTNERS II, L.P. By: Section H Partners, L.P., its general partner By: Karenina Corporation, a general partner of Section H Partners, L.P. By: /s/ William A. Ackman ------------------------ William A. Ackman President By: DPB Corporation, a general partner of Section H Partners, L.P. By: /s/ David P. Berkowitz ------------------------ David P. Berkowitz President GOTHAM INTERNATIONAL ADVISORS, L.L.C. By: /s/ William A. Ackman ------------------------ William A. Ackman Senior Managing Member By: /s/ David P. Berkowitz ------------------------ David P. Berkowitz Senior Managing Member EX-99.1 2 EXHIBIT 51 IN THE COURT OF COMMON PLEAS CUYAHOGA COUNTY, OHIO - --------------------------------------x FIRST UNION REAL ESTATE EQUITY AND : CASE NO. 347063 MORTGAGE INVESTMENTS, : : : Plaintiff, : : v. : JUDGE TIMOTHY J. McGINTY : GOTHAM PARTNERS, L.P., et al., : DEFENDANTS' MOTION FOR : PRELIMINARY INJUNCTION : : Defendants and : Counterclaimants. : : - --------------------------------------x Gotham Partners, L.P. and Gotham Partners, II, L.P. (together, "Gotham"), hereby move, pursuant to Rule 65(B) of the Ohio Rules of Civil Procedure, for a preliminary injunction (1) requiring that First Union Real Estate Equity and Mortgage Investments (including any and all of its Trustees, officers, agents, servants, employees, attorneys and those persons in active concert or participation with them) ("First Union"), submit Gotham's proposal and nominees (as described in its proxy statement, attached as Exhibit E to Gotham's Brief in Support of Motion for Preliminary Injunction (the "Brief"), submitted herewith), to a shareholder vote at First Union's special meeting of shareholders on May 19 (the "Special Meeting"); (2) requiring that First Union permit Gotham to vote all of its shares of beneficial interest of First Union at the Special Meeting and prohibiting First Union from taking any action to prevent the inspector of elections at that Special Meeting from counting and certifying Gotham's votes; and (3) requiring First Union to otherwise comply with the procedures, set forth in Exhibit A attached to the Brief, proposed by Gotham to ensure an orderly and fair meeting. Despite two prior rulings of this Court supporting Gotham's right to propose that shareholders expand the First Union Board and its right to propose nominees to fill Board seats, First Union has consistently evidenced its intention to disenfranchise Gotham and to keep Gotham's proposal and nominees from reaching the First Union shareholders, in an attempt to protect entrenched management. As recently as May 7, 1998, First Union refused to confirm that it would present Gotham's proposal and nominees or allow Gotham's shares to be voted at the Special Meeting. The reasons in support of this motion are more fully set forth in the Brief which, together with its supporting materials, including the Affidavit of Edward McCarthy dated May 13, 1998, is incorporated herein by reference. Respectfully submitted, OF COUNSEL: /s/ David C. Weiner ------------------------------ David C. Weiner (0013351) HAHN LOESER & PARKS LLP Michael J. Garvin (0025394) 3300 BP America Building 200 Public Square Cleveland, Ohio 44114-2301 (216) 621-0150 - and - OF COUNSEL: /s/ John Sullivan ------------------------------ FRIED, FRANK, HARRIS, SHRIVER John Sullivan & JACOBSON (A Partnership Including 24th Floor Professional Corporations) One New York Plaza New York, New York 10004-1980 (212) 859-8000 Attorneys for Defendants-Movants IN THE COURT OF COMMON PLEAS CUYAHOGA COUNTY, OHIO ...............................................x FIRST UNION REAL ESTATE EQUITY AND MORTGAGE : CASE NO. 347063 INVESTMENTS, : : Plaintiff, : v. : JUDGE TIMOTHY J. McGINTY : GOTHAM PARTNERS, L.P., et al., : DEFENDANTS' BRIEF IN : SUPPORT OF MOTION FOR Defendants and : PRELIMINARY INJUNCTION Counterclaimants. : : : ...............................................x INTRODUCTION ------------ With utter disregard for shareholders and this Court, the Trustees and management of First Union Real Estate and Mortgage Investments ("First Union" or the "Trust") have continued in their quest to thwart the corporate electoral process and to deprive Gotham Partners, L.P. ("Gotham") of its rights under First Union's governing documents. Most recently, First Union has refused to agree to permit Gotham's proposal and nominees to be put to a shareholder vote at the May 19 shareholders' meeting (the "Special Meeting") or to allow Gotham to vote its shares at that meeting. The Special Meeting is now less than one week away. Gotham thus seeks an injunction requiring that First Union: (1) put Gotham's proposal and nominees to a shareholder vote at the Special Meeting; (2) permit Gotham to vote its First Union shares; and (3) otherwise comply with the procedures set forth in Exhibit A attached hereto (the "Procedures") at the Special Meeting. These Procedures are designed to ensure a fair and orderly process at the Special Meeting, for the benefit of the shareholders, who are entitled to a legitimate and fair election on May 19. STATEMENT OF FACTS ------------------ As this Court is aware, on January 16, 1998, First Union filed a complaint against Gotham seeking a declaratory judgment and permanent injunctive relief concerning Gotham's rights as a First Union shareholder, Gotham's standing to make a proposal and put forth nominees at the Company's April 14, 1998 annual meeting, and Gotham's purported violations of the Trust's Declaration and By-Laws. This Court denied First Union's motion for a preliminary injunction in a Judgment Entry issued on March 27 (the "Judgment Entry," attached hereto as Exhibit B), and held that "[a]ll the shareholders should have a fair opportunity to decide the direction of their corporation at the April 14, 1998 annual meeting." Id. at 13. Virtually immediately after this Court issued the Judgment Entry, First Union issued a press release in which it announced, among other things, its intention to postpone the annual meeting and in which its Chief Executive Officer James Mastandrea stated that continued litigation was necessary to reach a "real decision" on the issues in the case. Exhibit C. In response, Gotham filed a motion for a preliminary injunction to, among other things, restrain First Union from taking any steps to delay the conduct of the annual meeting. On March 31, the parties agreed and this Court ordered that the Special Meeting will be held on May 19, 1998, in lieu of the annual meeting. Exhibit D. Since that time, First Union has shown no sign that, despite the Court's rulings, it has abandoned its intention to keep Gotham's proposal and nominations(FN1) from the First Union shareholders and to prevent Gotham from voting its shares at the Special Meeting. In particular, First Union's proxy statement dated April 8, 1998, characterizes Gotham as "purported beneficiaries"; states that Gotham "would propose to introduce the Gotham Proposal" and if adopted "would propose to nominate the Gotham nominees"; and recommends to shareholders that "[i]f applicable . . . [they] vote against the Gotham proposal and against electing the Gotham nominees." Exhibit F at 3 (emphasis added). - ----------------------- [FN] 1 Gotham's proposal and nominations are set forth in its proxy statement, attached as Exhibit E. After reviewing this proxy statement, Gotham became concerned that First Union intended to flout this Court's Judgment Entry and deny shareholders the ability to vote on Gotham's proposal and nominations. Thus, on April 29, Gotham sent a letter to First Union seeking the Trust's agreement to adhere to certain procedures at the Special Meeting. Exhibit G. These procedures provided, among other things, that First Union would present Gotham's nominees and proposal and would not interfere with Gotham's voting rights. These procedures are reasonable and appropriate, particularly in the context of a contested election. See Affidavit of Edward McCarthy (sworn to May 13, 1998) (the "McCarthy Affidavit") P. 8. Gotham also requested that the Board take action in advance of the Special Meeting to approve the Gotham nominees. Exhibit G. On May 1, First Union sent a letter to Gotham in which it failed to agree to any procedures governing the conduct of the Special Meeting and failed to approve Gotham's nominees. Exhibit H. On May 6, Gotham sent a letter to First Union reiterating its requests made on April 29. Exhibit I. On May 7, First Union responded, stating that its Trustees would not approve Gotham's nominees and attaching a revised version of the Procedures. Exhibit J. Critically, First Union's revised Procedures indicate that First Union still refuses to agree that Gotham's proposal and nominees will be presented at the Special Meeting and still refuses to agree that Gotham has the right to vote its shares at the Special Meeting. It thus appears that, absent a further order from this Court granting Gotham a preliminary injunction, First Union has no intention of allowing a shareholder vote to proceed on Gotham's proposal and nominees and has every intention of stripping Gotham of its right to vote at the Special Meeting. First Union's shareholders have been submitting proxies for weeks, many are likely to make the trip to Cleveland to attend the Special Meeting on May 19, at great expense and inconvenience, and all expect to be able to exercise their right to corporate democracy on that date, and to change the direction of First Union if they so choose. See McCarthy Affidavit P. 7. Gotham already has received proxies for approximately 9.4 million votes in favor of Gotham's proposal and nominees, while First Union's nominees and proposals have garnered proxies representing fewer than one million votes. Id. at P. 4. It would defy both equity and common sense to permit the Special Meeting to proceed without rules to ensure that a legitimate election will be held on May 19, which is precisely what will happen without this Court's intervention. Id. P.P. 7-8. ARGUMENT -------- Despite months of litigation that should have been concluded with the Judgment Entry, First Union refuses to accept that Gotham has the legal right to put its proposal and nominees to a vote of First Union shareholders. On the contrary, as described above, as late as May 7 First Union rejected Gotham's right to put forth its slate of nominees, its proposal to expand the Board, and Gotham's right to vote its shares. It is self-evident that if Gotham is not allowed to take advantage of its rights to present its proposal and nominees and to vote its shares, it will be irreparably harmed. See, e.g., Int'l Banknote Co. v. Muller (S.D.N.Y. 1989), 713 F. Supp. 612, 623 ("management subjects shareholders to irreparable harm by denying them the right to vote their shares or unnecessarily frustrating them in their attempt to obtain representation on the board"); R.D. Hubbard v. Hollywood Park Realty Enters., Inc. (Del. Ch. 1991), 1991 Del. Ch. LEXIS 9, at *18 ("the unadorned right to cast a ballot in a contest for office, a vehicle for participatory decision making and exercise of choice, is meaningless without the right to participate in selecting contestants"). The only way to ensure that Gotham will have its opportunity to effect the change in control that is its right as a First Union shareholder is by an order of this Court. First Union's tenacious refusal to agree at this late date in the parties' proxy contest to put Gotham's proposal and nominees to a shareholder vote or to agree to allow Gotham to vote its shares at the Special Meeting are blatant entrenchment tactics. These tactics violate the Declaration and By-Laws and well-settled principles of corporate law, and represent a breach of the Trustees' fiduciary duties. See, e.g., Schnell v. Chris-Craft Indus., Inc. (Del. 1971), 285 A.2d 437, 439. First Union has already argued before this Court -- and resoundingly lost -- that Gotham's proposal to enlarge the Board of Trustees violates the Declaration of Trust or the By-Laws. E.g., Exhibit B at 12. This Court also soundly rejected First Union's efforts to disenfranchise Gotham by nullifying Gotham's voting rights. Id. at 13 ("First Union's management's efforts to disenfranchise Gotham do not appear to be designed to protect First Union's REIT status but rather management."). Gotham has spent millions of dollars and focused significant attention on the current proxy contest with First Union and will be irreparably harmed if its opportunity to vote and to put forth its proposal and slate of nominees at the Special Meeting is denied or delayed. Moreover, First Union's shareholders are certain to be harmed by the lost opportunity to change management now, since that management is clearly acting solely out of self-interest and in violation of its fiduciary duties. Gotham therefore requests that this Court grant Gotham the relief it requests and order First Union to comply with the terms of the proposed Judgment Entry submitted herewith. Respectfully submitted, OF COUNSEL: /s/ David C. Weiner ------------------------------ David C. Weiner (0013351) HAHN LOESER & PARKS LLP Michael J. Garvin (0025394) 3300 BP America Building 200 Public Square Cleveland, Ohio 44114-2301 (216) 621-0150 - and - OF COUNSEL: /s/ John Sullivan ------------------------------ FRIED, FRANK, HARRIS, SHRIVER John Sullivan & JACOBSON (A Partnership Including Professional 24th Floor Corporations) One New York Plaza New York, New York 10004-1980 (212) 859-8000 Attorneys for Defendants-Movants CERTIFICATE OF SERVICE I hereby certify that a copy of the foregoing Motion for Preliminary Injunction, Brief in Support of Motion for Preliminary Injunction, Proposed Judgment Entry, and Affidavit of Edward McCarthy were duly served by messenger upon Frances Floriano Goins, Squire, Sanders & Dempsey L.L.P., 4900 Key Tower, 127 Public Square, Cleveland, Ohio 44114-1304, attorneys for plaintiff, this 14th day of May, 1998. /s/ Thomas A. Cunniff ------------------------------------- One of the Attorneys for Defendants EX-99.2 3 Exhibit 52 IN THE COURT OF COMMON PLEAS CUYAHOGA COUNTY, OHIO FIRST UNION REAL ESTATE EQUITY ) CASE NO. 347063 AND MORTGAGE INVESTMENTS ) ) Plaintiff, ) JUDGE TIMOTHY J. McGINTY ) v. ) ) GOTHAM PARTNERS, L.P., et al., ) ) ) FIRST UNION'S MOTION FOR ) SANCTIONS AND BRIEF IN ) OPPOSITION TO GOTHAM'S ) MOTION FOR PRELIMINARY ) INJUNCTION Defendants. ) ) INTRODUCTION ------------ Faced with a turning tide in its ill-mannered attempt to take over First Union, Gotham comes back to the source of its one shining success thus far: this Court. The time has come for this Court to tell Gotham to win on its own or take its marbles and go home, but to stop asking this Court to fight its battles. Gotham has no claim here, and this is little more than a reprehensible effort to intimidate the Board into serving Gotham's interests at the expense of the Trust and its other shareholders - -- and to improperly use judicial process toward that end. And what is most disturbing about this is the fact that Gotham, which has oft-repeated the mantra "let the shareholders decide," clearly now wants no such thing. Rather, it wants to manipulate the Board into disenfranchising the shareholders by making it impossible for Gotham to lose --notwithstanding what the shareholders might in fact want. Moreover, Gotham wants the Board to do this against a factual backdrop in which it now has come to light that the Ohio Division of Securities is conducting an investigation into whether Gotham and its crony funds have been conducting an illegal control bid under Ohio law. Gotham is big on alluding that others are failing to abide by their fiduciary duties to shareholders. And yet, when it comes down to it, it is reluctant to put pen to paper and make a claim, because what Gotham really means is that First Union's management has failed to slavishly comply with Gotham's desires and demands. This latest motion constitutes yet another egregious example of this. Gotham hints at claiming that the Board is somehow breaching its fiduciary duties by not signing an agreement which essentially gives Gotham -- less than a 10% shareholder in its own right -- total control of the Trust without input from the shareholders at large as to whether they want this entity controlling their investments, and which would exempt Gotham's shares from the record date requirements applicable to all shares. But there is absolutely no basis in fact or law for this phantom claim. Gotham, contrary to what its proxy solicitor's affidavit would indicate, apparently is now sensing that its base of support among First Union shareholders is eroding quickly, and that the shareholders of First Union are not exactly jumping at the opportunity to have their Trust run by an unproven management team with no action plan and credentials that are charitably described as shaky. The reasons for this shift in support (if, indeed, Gotham ever had the support it claimed to have had) are manifest. Most significantly, last Friday, Institutional Shareholders Services ("ISS"), a respected analyst group upon whose advice many of First Union's shareholders rely, came out strongly against giving Gotham control of the Trust, stating, "If all nine of [Gotham's] designees win seats on the board, Gotham will control this company, and shareholders should be truly mindful of this fact. Considering the incongruity of its action plan for the company, ISS does not believe shareholder interests would be best served by ceding complete control of First Union." (Ex. A, p. 1). This came on top of the fact that Standard & Poors already had threatened to downgrade First Union's debt in the event Gotham assumes control. Gotham's resort to this Court for an injunction in the current circumstances clearly constitutes sanctionable frivolous conduct. And, of course, it should go without saying that Gotham's preliminary injunction motion should be denied for a number of independently sufficient reasons. First, the parties against whom Gotham actually seeks this mandatory injunction (the Trustees) are not parties to this action. It is hornbook law that a court may not lawfully enjoin an individual or entity that is not a party to the action from which the injunction arises. In addition, Gotham has made no claim, and cannot establish the likelihood of success on the merits of its "claim" for preliminary injunction purposes. Finally, Gotham has made no demand on the Trust's shareholders nor offered an excuse as to why a demand was not made. For the foregoing reasons, fully explored below, First Union's motion for sanctions should be granted, and Gotham's motion for preliminary injunction should be denied. LAW AND ARGUMENT ---------------- I. SANCTIONS ARE APPROPRIATE IN THIS CASE PURSUANT OHIO REVISED CODE SECTION 2323.51 AS GOTHAM'S MOTION IS CLEARLY A SHAM As will be demonstrated convincingly below, Gotham's filing of this motion for preliminary injunction constitutes "Frivolous conduct" pursuant to Ohio Rev. Code Section 2323.51, entitling First Union to an award of court costs, reasonable attorneys' fees, and other reasonable expenses incurred in responding to the motion. The frivolous conduct statute was adopted in 1987 "to rectify [ ] many of the shortcomings of Civil Rule 11 " Ceol v. Zion Industries, Inc., (Lorain Cty. 1992) 81 Ohio App.3d 286, 291. For example, the statute (unlike Rule 11) covers the conduct of parties as well as attorneys, and defines frivolous conduct in objective terms without reference to the knowledge or beliefs of the person responding to the sanctions motion. Id. For purposes of Section 2323.51, as revised in 1996, "conduct" includes the filing of a motion. Ohio Rev. Code section 2323.51 (A)(1)(a) (1997). "Frivolous conduct" includes (1) conduct not warranted under existing law, a good faith argument for an extension, modification, or reversal of existing law, or a good faith argument for the establishment of new law, Ohio Rev. Code section 2323.51 (A)(2)(a)(ii); and (2) factual allegations that are neither supported by evidence nor likely to be supported by evidence after a reasonable opportunity for investigation. Ohio Rev. Code section 2323.51 (A)(2)(a)(iii). See Jones v. Billingham, (Montgomery Cty. 1995), 105 Ohio App.3d 8. As is demonstrated more fully below, Gotham's new motion for preliminary injunction is frivolous on its face, lacking both a reasonable legal basis and any evidence likely to support the claims. Thus, sanctions pursuant to Section 2323.51 are appropriate, as well. II. THIS COURT CANNOT AWARD GOTHAM THE RELIEF IT SEEKS AGAINST THE TRUSTEES AS THE TRUSTEES ARE NOT NOW, NOR HAVE THEY EVER BEEN, NAMED AS PARTIES TO THIS ACTION Having expended tremendous amounts of its time and resources, to say nothing of the time and resources of this Court and First Union, in the fight to have its nominations and takeover proposal put to a vote of First Union's shareholders, Gotham now seeks to have this Court enjoin First Union's Trustees in such a manner as to, in essence, disenfranchise the remainder of First Union's shareholders. This Court, however, cannot enjoin First Union's Trustees because it has not, in the first instance, obtained jurisdiction over First Union's Trustees, several of whom reside outside of Ohio. First Union filed this case against Gotham Partners, L.P. and Gotham Partners II, L.P. Gotham counterclaimed against First Union (which counterclaim is now, by Gotham's admission, moot). THE TRUSTEES OF FIRST UNION HAVE NEVER BEEN NAMED AS A PARTY TO THIS ACTION, AND AS SUCH, THIS COURT DOES NOT HAVE JURISDICTION TO ISSUE ANY INJUNCTIVE RELIEF AGAINST THEM. III. A PRELIMINARY INJUNCTION IS NOT APPROPRIATE IN THIS CASE AS GOTHAM CANNOT ESTABLISH ANY OF THE REQUISITE ELEMENTS BY CLEAR AND CONVINCING EVIDENCE A. THE LEGAL STANDARD FOR A PRELIMINARY INJUNCTION ----------------------------------------------- A preliminary injunction is an extraordinary remedy of equity used only when there is no adequate remedy available at law. Garono v. State, 37 Ohio St. 3d 171, 173 (1988). A party does not have an automatic right to a preliminary injunction; rather, a preliminary injunction is granted only when it is necessary to prevent a future wrong that the law cannot correct. Id. The decision of whether to grant or deny a preliminary injunction is a matter solely within the discretion of the trial court. Danis Clarkco Landfill Co. v. Clark County Solid Waste Management Dist., 73 Ohio St. 3d 590, 604 (1995); Garono, 37 Ohio St. 3d at 173; Consun Food Indus., Inc. v. Fowkes, 81 Ohio App. 3d 63, 69 (Lorain Cty. 1991). In exercising its discretion on a motion for preliminary injunction, the trial court must consider four prerequisites: (1) whether there is a substantial likelihood that the plaintiff will prevail on the merits; (2) whether the plaintiff will suffer irreparable injury if the injunction is not granted; (3) whether others will be unjustifiably harmed if the injunction is granted; and (4) whether the public interest will be served by the granting of the injunction. Goodall v. Crofton, 33 Ohio St. 271, 276 (1877); Vanguard Transp. Sys., Inc. v. Edwards Transfer & Storage Co., 109 Ohio App. 3d 786, 790 (Franklin Cty. 1996); Corbett v. Ohio Bldg. Auth., 86 Ohio App. 3d 44, 49 (Franklin Cty. 1993). To obtain a preliminary injunction, Gotham must show each of these elements by clear and convincing evidence. Vanguard Transp. Sys., Inc., 109 Ohio App. 3d at 790; Mead Corp. v. Lane, 54 Ohio App. 3d 59, 63 (Ross Cty. 1988). Gotham cannot meet the requisite standard of proof as to even one of these elements. B. GOTHAM WILL NOT SUCCEED ON THE MERITS OF ITS CLAIM -------------------------------------------------- In the first instance, no injunction can issue here because Gotham has not even stated a claim upon which such an injunction can issue. It is hornbook law that, when a movant seeks a mandatory injunction against a party on a cause of action not made against that party, no injunction can issue. Weir v. Whitney, 57 N.E.2d 715 (Cuyahoga Cty. App. 1944) ("Clearly there is no basis in this case for granting what is, in effect, a permanent mandatory injunction upon a cause of action not mentioned in the petition"). Gotham's motion for preliminary injunction is based upon an on orphan "claim," presumably against First Union's Board of Trustees, which to this day has never been asserted in this action. As the claim has not been made, nor have the Trustees been served process with respect to it, nor have they been given any opportunity to conduct discovery to defend themselves against this motion. Under these circumstances, it would be a fundamental denial of due process and plain error to grant Gotham's Motion. The foregoing factor, alone, is dispositive of Gotham's motion. But assuming arguendo Gotham had made a claim, an injunction still could not appropriately issue. To obtain a preliminary injunction, Gotham must first show -- by clear and convincing evidence -- that there is a substantial likelihood that it will prevail on the merits of its claim. Goodall, 33 Ohio St. at 276; Vanguard Transp. Sys., Inc., 109 Ohio App. 3d at 790; Corbett, 86 Ohio App. 3d at 49. Not surprisingly, in light of the glaring absence of a claim upon which to premise its motion, Gotham does not bother to discuss in its motion papers this critical aspect of the preliminary injunction ANALYSIS. Instead, it skips right ahead to the "irreparable harm" factor. This is troubling, because if Gotham had bothered to undertake a "merits" analysis, it would have seen that it is unable to establish by clear and convincing evidence that, under Ohio law, a breach of fiduciary duty on the part of the trustees has taken place or will take place. Moreover, as Gotham has not complied with the mandatory requirements for pleading a derivative claim, its claim must fall as a matter of law. Accordingly, Gotham's motion for a preliminary injunction should be denied. 1. GOTHAM'S "CLAIM" HAS NO BASIS UNDER OHIO LAW Gotham's motion would appear to be based on an unasserted derivative claim premised on the First Union TRUSTEES' alleged breach of fiduciary duties. After all, the letters asking First Union to agree to Gotham's proposed agreement regarding procedures were all directed to the Board of Trustees of First Union, so, presumably, Gotham believes it is the Board who is acting wrongfully. Ohio law applies here and, unlike Delaware law, OHIO LAW HAS UNEQUIVOCALLY REJECTED DELAWARE'S ENHANCED SCRUTINY STANDARD IN A CONTROL CONTEST. As Justice Holmes noted in his concurrence in Stepak v. Schey, 51 Ohio St.3d 8 (1990) (Ex. B), the general assembly enacted amendments to Ohio Rev. Code ss. 1701.59 and ss. 1701.60 "in order to significantly increase the protection afforded to corporate directors": THE PURPOSE BEHIND THE ADOPTION OF THESE AMENDMENTS WAS "TO MAKE CLEAR THAT A DIRECTOR HAS THE BENEFIT OF A PRESUMPTION THAT HE [OR SHE] IS ACTING IN GOOD FAITH AND IN A MANNER HE [OR SHE] REASONABLY BELIEVES IS IN (OR NOT OPPOSED TO) THE BEST INTERESTS OF THE CORPORATION IN ALL CASES, INCLUDING THOSE AFFECTING OR INVOLVING A CHANGE IN CONTROL OR A TERMINATION OF HIS [OR HER] SERVICES. It is believed that the changes are necessary because of the adoption by some courts, notably those of Delaware, of the view that, in such cases, the director becomes an interested party and, as a result, loses the benefit of the business judgment rule." Id. at 13, quoting 1986 Commentary, OSBA Corporation Law Committee (quoted in Burton & Rich, Ohio Corporation Law & Practice [1989] 109, Section 6.4). As the Cuyahoga County Court of Appeals noted, when it comes to board decisions, "[a] court will apply the business judgment rule ... unless the defense is made inapplicable by proof of the director's personal interest or self-dealing." Worth v. Huntington Bancshares, Inc., No. 52861, 1987 Ohio App. LEXIS 9827 (Cuy. Cty. App. Nov. 25, 1987) (Ex. C), aff'd Worth v. Huntington Bancshares, Inc., 43 Ohio St.3d 192,197 (1989) (Ex. D). Gotham, of course, cannot establish by clear and convincing evidence (or any evidence at all) personal interest or self-dealing on the part of the Board. See also Abrahamson v. Waddell, 63 O. Misc. 2d 270 (Hamilton Cty. 1992) (corporate directors are not required to submit every acquisition proposal to shareholders and under Ohio law, directors are granted a statutory presumption that they have acted in good faith and in the best interests of the corporation). The primary unalleged "breach of fiduciary duty" which Gotham seeks to have this Court enjoin involves a proposed voting agreement as to a procedure for the conduct of the upcoming special meeting which First Union declined to accept wholesale. Gotham asks the Court to force the Board of Directors of First Union, a public real estate investment trust traded on the New York Stock Exchange, to enter the proposed agreement with Gotham. In and of itself, some agreement along these lines would not be unreasonable. Gotham's proposed agreement, however, contains a myriad of superfluous clauses designed, among other things, to waive First Union's rights against Gotham in this and other litigation and to hoodwink the other shareholders into believing that the Board supports Gotham's control bid. And that is, in a word, unacceptable, particularly when it recently has come to light that Gotham is under investigation by the Ohio Division of Securities,(FN1) which has the statutory authority to stop Gotham's takeover in its tracks if it finds that Gotham has not compiled with the Ohio Control Bid Statute (See O.R.C. ss.ss. 1701.25, 1701.26); Standard & Poors has publicly announced that First Union's Senior Notes will be downgraded if Gotham assumes control; and ISS has advised shareholders to vote against Gotham's takeover proposal. - ------------------- [FN] 1 First Union has talked to representatives of the Ohio Division of Securities, who have advised First Union that the Division has independently determined that there is sufficient basis to institute an inquiry and, pursuant to O.R.C. ss. 1707.23, the Division has confirmed that it has sent a request to Gotham to produce certain information regarding its control bid for First Union because of possible violations of the Ohio Control Bid Act. Nonetheless, Gotham suggests that these extraordinary proceedings are necessary, and an injunction must immediately issue, because the Trustees have refused to accede to Gotham's wishes and sign off on the Gotham agreement. But this argument cannot withstand even cursory scrutiny. As a preliminary proposition, it must be noted that First Union's Board is under no obligation to enter into such an agreement, nor is Gotham in any way entitled to force First Union to do so. Indeed, the power to establish procedures for the Special Meeting lies within the exlusive domain of the Trustees, not shareholders such as Gotham, and the Declaration of Trust makes that fact eminently clear. See Declaration of Trust, Section 2.1 ("The Trustees shall have all powers necessary, convenient or appropriate to effectuate the purposes of the Trust and may take any action which they may deem necessary or desirable to that end . . . ."); Section 6.1 ("The right to conduct the affairs of the Trust are vested exclusively in the Trustees . . . ."). Moreover, it would be a tremendous abdication of the Trustees' oversight responsibilities with respect to this election if First Union were to enter into the sort of blanket agreement Gotham desires. It is undisputed that all the shareholders, including Gotham, are entitled to vote ONLY THE SHARES THEY OWNED AS OF THE RECORD DATE FOR THE SPECIAL MEETING. Gotham would, in its reckless quest for control of the Trust, ignore this critical fact. But what if Gotham acquired beneficial shares of First Union yesterday, for example? Under Gotham's proposed agreement, Gotham would be entitled to vote any and all shares, including those purchased after the record date (while similarly situated shareholders, of course, would not). The fact that, in an election in which it seeks control, Gotham is already attempting to invest its own shares with rights in excess of those owned by the Trust's other shareholders speaks volumes about Gotham's true feelings on the meaning of corporate democracy. Nor is Gotham satisfied at stopping there. Gotham wants the preliminary injunction to mandate all of the "Procedures" on its wish list. For example, the "Procedures" First Union has refused to wholesale adopt include Gotham's request that Corporation Trust Company ("CT"), the independent inspector of elections, provide a preliminary report by 5:00 p.m. on Tuesday, regardless of whether CT has completed its tally. Such a report, though, would be of little or no consequence to First Union, Gotham or the rest of First Union's shareholders, as only a completed tally could be deemed to constitute the official declaration of the results of the meeting. A premature tally could likewise send misleading signals to the market. While Gotham's anxiety about the outcome is understandable, this Court's extraordinary equitable powers cannot be used as the functional equivalent of tea leaves. And it is not as if CT's independence and integrity are in dispute, nor is there any basis to believe that CT's tally will be any more timely or complete if it is required to make a speculative preliminary report, based upon an incomplete and partial tally, by 5:00 p.m. on Tuesday. In addition, the proposed agreement was drafted in a manner that legitimately gave the Trustees pause as to whether, by its terms, it would constitute a waiver of First Union's claims in this litigation and related matters. In response, and in the course of good faith negotiations, First Union offered the following proposed additional langauge to address this concern: WHEREAS, none of the parties intend for this Agreement to operate as a waiver of any rights or claims any of them has in any pending litigations between them or otherwise, or to impact in any way the issues of whether Gotham had the right to make its proposals to shareholders or has the right to vote at the Meeting its own shares or proxies it has solicited. (First Union Revised Proposed Agreement, p. 1.) Gotham refused to accept this proposal, and instead ran to this Court screaming foul. And yet, if Gotham's true intent was something other than fooling the Board into waiving its claims against Gotham, what would have been the harm in agreeing to First Union's proposed clarification? The question answers itself. It is not as if First Union has been unreasonable about attempting to work with Gotham on resolving these issues -- as they ought to be resolved - -- without the intervention of this Court. As already noted, First Union provided well in advance of the filing of Gotham's motion a revision of Gotham's proposed agreement regarding procedures for the conduct of the Special Meeting which is quite similar to Gotham's, except that it deletes the gratuitous references to the Board's purported "approval" of Gotham's slate and clarifies issues such as the aforementioned ones. The revision offers a framework for the vote that is workable and fair to the shareholders, and no one could reasonably object to it. As is Gotham's habit, however, it had to have it all; it had to have a "Procedure" that was not "fair," but rather slanted. Frankly, it is hard to believe that Gotham would ask a court in equity to step into what are, in essence, business negotiations and dictate the inclusion of certain terms over others, particularly against the backdrop of Ohio's business judgment rule. One can only wonder what will be next. Will Gotham ask this Court to order First Union to purchase certain properties as opposed to others? Or raise or lower rents? Or start buying its office supplies at a Gotham-owned discount house? Quite plainly, there is no place for a mandatory injunction in business negotiations such as these, and the fact that Gotham seeks one indicates Gotham may be a bit too emboldened by its self-perceived past litigation successes. This raises another more basic issue. Gotham claims that it will be a breach of fiduciary duty for the Board not to work with Gotham in the manner Gotham insists it must. Yet, the market is sending signals that would indicate that quite the opposite is true. For example, the recent ISS recommendations that, while three members of Gotham's slate should be elected to the Board, the size of the Board should not be expanded, presage the clear possibility of a Gotham defeat in the upcoming election. ISS is recommending against giving control of First Union to the Gotham forces. Indeed, ISS specifically identified as Gotham's weaknesses its action plan for the Trust and the individuals it has nominated for trustee: [Gotham's] biggest failing in this proxy contest is in having drawn its list of nominees from its own in-house talent rather than seeking truly independent candidates. Virtually every one of its nominees is an employee, limited partner, or affiliate of Gotham. This may constitute a slate that is independent of the company, but it is not independent of Gotham. If all nine of its designees win seats on the board, Gotham will control this company, and shareholders should be truly mindful of this fact. Considering the incongruity of its action plan for the company, ISS does not believe shareholder interests would be best served by ceding complete control of First Union. (ISS Report, p. 21.) While it should come as a surprise to no one, a target corporation's board has a fiduciary duty to resist a takeover that it believes is not in the best interests of the target entity or its shareholders. See, e.g., Heit v. Baird, 567 F.2d 1157, 1161 (1st Cir. 1977); Northwest Indus., Inc. v. B. F. Goodrich Co., 301 F. Supp. 706, 712-13 (N.D. Ill. 1969); McPhail v. L. S. Starrett Co., 257 F.2d 388, 396 (1st Cir. 1958); Abrahamson v. Waddell, 63 Ohio Misc. 2d 270 (Hamilton Cty. 1992). In light of the information available to the Board militating against approval of Gotham's proposals, it simply is not possible for Gotham to carry its burden of establishing by clear and convincing evidence that the Board's refusal to enter into an agreement which essentially hands over the Trust to Gotham is a breach of its fiduciary duties. Thus, Gotham's motion for preliminary injunction must be denied. 2. NO DEMAND HAS BEEN MADE UNDER OHIO CIVIL RULE 23.1, NOR HAVE ANY OF THE OTHER MANDATORY PLEADING REQUIREMENTS FOR A DERIVATIVE ACTION BEEN MET Gotham's claim is, of course, in the nature of a derivative action. Ohio Civil Rule 23.1 contains a specificity of pleading requirement mandating a plaintiff bringing a derivative claim on behalf of a corporation to make a demand on the Board and, if necessary, on the shareholders, and allege with particularity its failure to obtain the action or for not making the effort. See Ohio R. Civ. P. 23.1. The reasons for the demand requirement are several. First, it must be remembered that the claim belongs to the corporation or, in this case, the Trust; See Norris v. Weir, 35 Ohio App. 3d 110, 520 N.E.2d 10, Syllabus P. 3 (Cuyahoga Cty. 1987) ("The heart of a Civ. R. 23.1 action is the corporate claim."); overruled on other grounds Perry v. Eagle-Picher Industries, 52 Ohio St.3d 168 (1990). It only makes sense, therefore, that before a shareholder can assert the Trust's claim, the Trust should have the opportunity to decide whether litigation is in its best interests. The demand requirement also recognizes that "the business and affairs of the corporation are managed by and under the direction of its board." Pogostin v. Rice, 480 A. 2d 619, 624 (Del. 1984). Managing the affairs of a trust includes the right to decide whether the trust should engage in derivative litigation. Aronson v. Lewis, 473 A.2d 805, 811-12 (Del. 1984). Gotham has not, of course, alleged anything about a demand in its Counterclaims. In addition, Gotham has failed to meet various other prerequisites to the proper filing of a derivative claim, which have been set forth at some length in First Union's Motion to Dismiss Counts I, II, II, IV and V of Gotham's Counterclaims at pp. 7-9, and will, for the sake of brevity, be incorporated herein by reference. C. THERE IS NO THREAT OF IRREPARABLE HARM TO GOTHAM IF THE PRELIMINARY INJUNCTION IS NOT GRANTED The mere fact that Gotham contends, hot on the heels of ignoring altogether the issue of likelihood of success on the merits, that irreparable harm is "self-evident," should give this Court pause. Moreover, if there is any doubt that irreparable harm does not exist in these circumstances, it should be resolved by the fact that Gotham has previously represented to the Court, in opposing First Union's motion for preliminary injunction, that "full relief can be granted after a shareholder vote." (See Defendants' Supplemental Brief in Opposition to Plaintiff's Motion for a Preliminary Injunction, p. 25.) In any event, Gotham's entire motion - irreparable harm and all - is based on pure speculation arising from little more than Gotham's paranoid interpretations of a few words in a proxy statement. This simply does not suffice as a basis for the issuance of the extraordinary remedy of an injunction. Moreover, Gotham has not demonstrated that it would not have an adequate remedy at law, and if there is an adequate remedy available at law available, equity must not interfere. Id. D. THE BOARD, FIRST UNION AND ITS SHAREHOLDERS WILL BE UNJUSTIFIABLY HARMED IF THE PRELIMINARY INJUNCTION IS GRANTED The Court should not grant Gotham a preliminary injunction for the additional reason that the Board, First Union and its shareholders will be unjustifiably harmed by an injunction. Ohio courts have firmly established that a preliminary injunction should not be granted if greater injury would be done by granting an injunction than by leaving the parties to their remedy at law. Goodall, 33 Ohio St. at 273; Restivo, 113 Ohio App. 3d at 520-21; Rite Aid v. Marc's Variety Store, Inc., 93 Ohio App. 3d 407, 412 (Cuyahoga Cty. 1994). Stated another way, if granting an injunction causes more injury to the defendant than advantage to the plaintiff, an injunction should not be granted. Goodall, 33 Ohio St. at 277; Restivo, 113 Ohio App. 3d at 520-21; Rite Aid, 93 Ohio App. 3d at 412. This is essentially a balancing test weighing the irreparable harm that would result to the plaintiff if the injunction were denied and the harm that would be caused to the defendant if the injunction were granted. Goodall, 33 Ohio St. at 277; Restivo, 113 Ohio App. 3d at 520-21; Rite Aid, 93 Ohio App. 3d at 412. If a preliminary injunction were granted in this case, the overwhelming balance of the hardship would be placed on the Board, First Union and its shareholders. The Board will be forced to make "decisions" that are against their better business judgment. The shareholders, meanwhile, will be misled into thinking that the Board suppoits the control bid of Gotham, notwithstanding the fact that Gotham's assumption of control would be viewed negatively by the market and notwithstanding the fact that Gotham is currently being investigated by the Ohio Division of Securities for violations of Ohio's securities laws. Moreover, as Gotham itself has pointed out in the past, this Court risks sending a message to the shareholders that it has made a determination that Gotham should take control of First Union: "THIS COURT . . . SHOULD BE WARY OF INTERJECTING ITSELF INTO WHAT SHOULD BE A FREE AND FAIR COMPETITION BETWEEN FIRST UNION AND GOTHAM FOR THE HEARTS, MINDS, AND VOTES OF FIRST UNION'S SHAREHOLDERS." (GOTHAM'S 3/2/98 BR. IN OPP. TO PL.'S MOT. FOR PRELIM. INJ, P.6) The harm to the election process would be immeasurable if this Court "pre-approves" Gotham's control bid, as Gotham is asking it to do. This provides yet another basis for denying the motion for preliminary injunction. E. PUBLIC POLICY MANDATES THAT GOTHAM'S MOTION FOR PRELIMINARY INJUNCTION BE DENIED Finally, there are important public policy considerations at issue here. In accordance with the analogous Ohio corporate governance statutes, boards are elected by the shareholders to use their best business judgment in steering companies through situations like the one at issue. Gotham stands before this Court saying, in essence, that this Court should take away that statutorily mandated shareholder protection because, notwithstanding the fact that it is not part of a "group" for Rule 13(d) purposes and, according to it, holds less than 9.6% of First Union's shares, it just happens to know that it speaks for a majority of the shareholders and will win the election. Thus, according to Gotham, the Court should disregard the fact that no vote has yet occurred, as the vote will be a mere formality, and should today hand over to Gotham the Board's decision making authority, as it will soon be Gotham's anyway. But at least one securities regulatory body has found Gotham's conduct herein to merit further investigation. As a matter of public policy, the Court should forestall declaring Gotham the winner until that entity concludes its investigation, or, at the very least, until such time as shareholders have had a chance to speak -- unbullied -- on Gotham's control bid. To further these important public policies, the Court should deny Gotham's Motion for Preliminary Injunction. CONCLUSION ---------- For the reasons set forth herein, First Union respectfully requests that Gotham's Motion for Preliminary Injunction be denied, and that First Union's Motion for Sanctions be Granted. Respectfully submitted, /s/ Frances Floriano Goins -------------------------------- Frances Floriano Goins (0018631) Martha S. Sullivan (0064040) SQUIRE, SANDERS & DEMPSEY L.L.P. 4900 Key Tower 127 Public Square Cleveland, Ohio 44114-1304 James P. Murphy (0003874) SQUIRE, SANDERS & DEMPSEY L.L.P. 1201 Pennsylvania Avenue N.W. P.O. Box 407 Washington, D.C. 20044 (202) 626-6600 Attorneys for Plaintiff First Union Real Estate Equity and Mortgage Investments CERTIFICATE OF SERVICE ---------------------- A copy of the foregoing FIRST UNION'S MOTION FOR SANCTIONS AND BRIEF IN OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION was served this day of 14th day of May, 1998, by hand delivery upon David C. Weiner, Esq., Hahn Loeser & Parks L.L.P., 3300 BP America Building, 200 Public Square, Cleveland, Ohio 44114-2301; and by U.S. Mail, postage prepaid upon Alexander R. Sussman, Esq., Fried, Frank, Harris, Shriver & Jacobson, One New York Plaza, New York, New York, 10004, counsel for Plaintiffs Gotham Partners, L.P., and Gotham Partners II, L.P. /s/ Frances Floriano Goins ---------------------------------- One of the Attorneys for Plaintiff First Union Real Estate Equity and Mortgage Investments -----END PRIVACY-ENHANCED MESSAGE-----