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Sonesta Int'l Hotels Corp. v. Wellington Assoc.

United States Court of Appeals for the Second Circuit

June 5, 1973, Argued ; July 3, 1973, Decided

No. 1055, Docket No. 73-1785


 [*248]  MANSFIELD, Circuit Judge:

Sonesta International Hotels Corp. ("Sonesta") appeals from the denial of a preliminary injunction sought against Wellington Associates, the latter's partners Sol Goldman and Alex DiLorenzo, and all persons acting on their behalf (herein collectively referred to as "Wellington"), to enjoin Wellington, during the pendency of this action, from (a) acquiring or attempting to acquire in any manner any shares of stock of Sonesta, (b) voting any shares of Sonesta stock held or acquired after the initiation of the plan, combination or conspiracy of the defendants alleged by Sonesta in its  [*249]  complaint, (c) exercising, directly or indirectly, any influence upon the management of Sonesta, and (d) otherwise utilizing any such stock or shares of Sonesta stock previously acquired as a means of controlling or affecting the management of Sonesta. Sonesta also sought an order directing Wellington to vote its shares of Sonesta stock in favor of Proposals Nos. 3 and 4 set forth in Sonesta's Notice of Annual Meeting, dated April 16, 1973, which relate to shareholder authorization [**2]  for the sale of Sonesta's interests in two hotels and the distribution of the net proceeds of the sales to common shareholders, expected to amount to about $2 per share, subject to a favorable tax ruling and the adoption of a plan of partial liquidation by Sonesta's Board of Directors.

The gravamen of Sonesta's complaint, brought on by order to show cause before Judge Ryan, is that Wellington failed to disclose, in connection with its cash tender offer announced in the Wall Street Journal on May 9, 1973, for 1,000,000 1 shares of Sonesta common at $7 per share, several material facts which were necessary to make the cash offer, as published, and the Schedule 13D filed with the SEC on May 8 concerning the cash offer, not misleading, in violation of §§ 10(b), 13(d), 14(d), and 14(e) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b), 78m(d), 78n(d), and 78n(e) (1971). These laws are founded on the principle that ] full and fair disclosure of all material facts must be made to investors so that they may have the benefit of the facts in making their investment decisions.  [**3]  See Affiliated Ute Citizens v. United States, 406 U.S. 128, 151, 92 S. Ct. 1456, 31 L. Ed. 2d 741 (1972); 1968 U.S.Code Cong. & Adm.News p. 2813.

Sonesta filed its complaint on May 14, 1973. Judge Ryan heard argument on May 17, and on May 22 he rendered a written decision denying Sonesta's request for a preliminary injunction, finding no showing of irreparable injury on the part of Sonesta or likelihood of success on the merits, and specifically finding no false or misleading statements or omissions in the 13D statement or in the tender offer. The offer expired on May 21, according to its terms, with 419,623 shares having been tendered to Wellington. On May 23 Judge Ryan entered an order in accordance with his decision of the previous day. Sonesta thereupon sought and obtained a stay from another panel of this court, which also [**4]  expedited the appeal. Sonesta's Annual Meeting, scheduled for May 24, went forward as planned, and the necessary two-thirds shareholder approval was obtained for Sonesta's Proposals 3 and 4, described above.

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483 F.2d 247 *; 1973 U.S. App. LEXIS 8969 **; Fed. Sec. L. Rep. (CCH) P94,041



shares, shareholders, tender offer, disclosure, stock, misleading, omissions, proposals, stockholders, acquire, material fact, tendered, preliminary injunction, circumstances, consummation, Hotel, fail to disclose, outstanding, delisting, disclose, terms, investor, merits, voting

Mergers & Acquisitions Law, Takeovers & Tender Offers, General Overview, Securities Law, Express Liabilities, Misleading Statements, Civil Procedure, Settlements, Settlement Agreements, Civil Liability Considerations, Preservation of Remedies & Rights, Remedies, Injunctions, Preliminary & Temporary Injunctions, Postoffering & Secondary Distributions, Tender Offers, Duties & Liabilities of Shareholders, Judicial Officers, Judges, Discretionary Powers, Self-Regulating Entities, National Securities Exchanges, New York Stock Exchange, Factors & Tests, Duties & Liabilities of Offerors