United States District Court, D. Nevada
COMPARTMENT IT2, LP, a Georgia limited partnership, COMPARTMENT IT5, LP, a Georgia limited partnership, COMPARTMENT IT9, LP, a Georgia limited partnership, and MFAM MOBILFUNK ASSET MANAGEMENT GMBH, a German corporation, Plaintiffs,
FIR TREE, INC. d/b/a FIR TREE PARTNERS, PAUL MCGINN, GABRIEL MARGENT, GRANT BARBER, JARRET COHEN, and SCOTT TROELLER, Defendants.
MIRANDA M. DU UNITED STATES DISTRICT JUDGE
the Court are three motions: (1) Defendant Paul McGinn's
Motion to Dismiss (ECF No. 9); (2) Defendants Jarret Cohen,
Fir Tree, Inc. (“Fir Tree”), and Scott
Troeller's Motion to Dismiss (ECF No. 12); and (3)
Defendants Gabriel Margent and Grant Barber's Motion to
Dismiss (ECF No. 16). Plaintiffs Compartments IT2, IT5, and
IT9, LP (“IT Funds”), together with MFAM
Mobilfunk Asset Management GmbH (collectively,
“Plaintiffs”) filed one consolidated response
(ECF No. 42), and Defendants replied (ECF Nos. 49, 50, 53).
The Court held a hearing on the motions on March 26, 2018.
(ECF No. 56.) For the following reasons, the Court grants
Defendants' motions to dismiss.
following facts are taken from the Complaint unless otherwise
indicated. CIG Wireless, Inc. (“CIG”) was a
corporation whose business consisted primarily of leasing
antenna space to wireless service providers on its network of
communications towers. (ECF No. 1 at 6.) Defendant Fir Tree
was CIG's controlling shareholder by virtue of the large
quantity of preferred stock it held, preferred stock that
entitled it to first cut of the proceeds from any liquidation
of CIG. Plaintiffs were CIG's minority shareholders and
held only common stock. Plaintiffs allege that Fir Tree
engaged in a course of conduct that caused the value of the
common stock to plummet while leaving the value of the
preferred stock intact, ultimately forcing a merger that left
Fir Tree flush with cash and Plaintiffs virtually
empty-handed. Plaintiffs further allege that the directors of
CIG-Cohen, Troeller, Margent, Barber, and McGinn
(“Director Defendants”)-functioned as Fir
Tree's puppets, carrying out Fir Tree's aim of
concentrating the equity value of CIG in the preferred stock.
IT Funds and Defendant Fir Tree both ended up as CIG
shareholders, but only Fir Tree started out that way. The IT
Funds began their relationship with CIG as creditors.
(Id. at 7.) Eventually, the IT Funds' confidence
in CIG grew, and the IT Funds agreed to convert certain loans
they had made to CIG into shares of CIG common stock.
(Id.) Although the IT Funds and CIG executed this
financing agreement in 2012, the loans did not actually
convert until 2014 and 2015. (Id.)
the IT Funds were still creditors, CIG obtained financing
from Defendant Fir Tree consisting of a $35 million infusion
with the right to call additional financing of up to $25
million. (Id. at 8-9.) In exchange for the $35
million infusion, Fir Tree received the right to designate
two board members, veto power over certain business
decisions, and two kinds of preferred stock (Series A-1
Preferred Stock and Series A-2 Preferred Stock).
(Id. at 9-11.) Once Fir Tree received the preferred
stock (of which Series A-2 conferred voting rights), Fir Tree
controlled about 48.8% of CIG's voting stock.
(Id. at 9.)
financing was governed by a contract (“Fir Tree
Financing Agreement”). The Fir Tree Financing Agreement
established that both kinds of preferred stock were entitled
to liquidation premiums and anti-dilution protection.
(Id.) The Fir Tree Financing Agreement also
established priorities among CIG's equity holders in the
event of liquidation: Series A-1 Preferred Stock would
receive payment first, and any surplus would flow to Series
A-2 Preferred Stock then to Series B followed by common
stock. (ECF No. 12 at 6.)
do not dispute that they executed an “Acknowledgement
and Consent” to the Fir Tree Financing Agreement.
(See ECF No. 42 at 19; see also ECF No. 14
Fir Tree Becomes Majority Shareholder
called on additional financing from Fir Tree twice, for a
total of $9 million. (ECF No. 1 at 11.) When the first call
closed on December 18, 2013, Fir Tree received sufficient
shares of preferred stock to make it the majority shareholder
of CIG, and the value of the common stock dropped to about
$1.50 per share. (Id. at 11-12.) When the second
call closed on March 7, 2014, Fir Tree held approximately
fifty-six percent of the outstanding voting stock of CIG.
(Id. at 12.) The common stock's value then fell
further, to $1.25 per share. (Id.) Plaintiffs allege
that the share price of the common stock fell because the
common stock was diluted and placed under Fir Tree's
growing liquidation preference. (Id.)
Funds' interests converted into shares of common stock on
December 31, 2014, and March 31, 2015. (Id. at 17.)
These conversions triggered the anti-dilution protections of
Fir Tree's preferred stock, but the corporate charter and
certificate of designation did not authorize enough shares to
carry out the anti-dilution protection. (Id.) The
Director Defendants amended the charter and certificate of
designation to authorize more shares, and Fir Tree received
voting shares sufficient to obtain sixty percent voting
power. (Id. at 17-18.)
allegedly went into “sleep mode” after accepting
Fir Tree's financing. (Id. at 11-12.) CIG
acquired towers at a slower rate, issued fewer press releases
than it had prior to the Fir Tree financing, and abandoned
efforts to list CIG's common stock on a U.S. national
exchange. (Id. at 11, 13.) The value of CIG's
common stock dropped significantly as a result of Fir
Tree's alleged dilution and expanding ...