LAMA HOLDING COMPANY, ET AL., APPELLANTS, v. SMITH BARNEY INC., ET AL.,
RESPONDENTS.
88 N.Y.2d 413, 668 N.E.2d 1370, 646 N.Y.S.2d 76 (1996).
June 13, 1996
1 No. 144 (1996 NY Int. 143)
Decided June 13, 1996
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This opinion is uncorrected and subject to revision before publication
in the New York Reports.
George R. Kucik, for Appellants.
William P. Frank, for Respondents.
SMITH, J.:
This action arises out of the sale by defendant Smith Barney, Inc. of
all of its stock in a merger with Primerica Corporation. The primary
issue here is whether the complaint states any cause of action
entitling plaintiffs to recover a $33 million tax liability or any
other relief. Because we agree that the complaint fails to state any
cause of action, we affirm the order of the Appellate Division
dismissing the complaint in its entirety.
In 1987, defendant Smith Barney and Primerica merged, with Primerica
acquiring all of the shares of Smith Barney. At the time of the
merger, plaintiff Lama Holding Company owned approximately 24.9% of
the shares of Smith Barney. Lama was at all times the largest single
shareholder of Smith Barney. The stock purchased by Lama was
designated "Rana Common Stock." Lama, incorporated under the laws of
Delaware, was formed expressly to acquire and hold stock in Smith
Barney for resale at a profit. Lama had purchased its interest in
Smith Barney in 1982, for approximately $40 million, through a
tri-tiered corporate structure. Lama was owned by two foreign
entities, with 66.6% owned by Rana Investments Ltd., a British Virgin
Islands corporation, and 33.3% owned by Rasha Investments, N.V., a
Netherlands Antilles corporation. Rana owned 100% of Rasha, and both
were part of a Middle Eastern investment group. The acquisition of
Smith Barney stock by Lama was part of a complex structure created to
take advantage of favorable U.S. tax treatment under the "General
Utilities Doctrine," pursuant to which a domestic corporation could
sell its assets under certain circumstances without incurring tax
liability.
SNIPPETS:
This action arises out of the sale by defendant Smith Barney, Inc. of all of its stock in a
The primary issue here is whether the complaint states any cause of action entitling
At the time of the merger, plaintiff Lama Holding Company owned approximately 24.9% of the
The stock purchased by Lama was designated "Rana Common Stock."
Lama was owned by two foreign entities, with 66.6% owned by Rana Investments Ltd., a British
Rana owned 100% of Rasha, and both were part of a Middle Eastern investment group.
When Lama purchased the Smith Barney stock in 1982, it entered into a shareholders' agreement
Plaintiffs maintain that by various unlawful means, Smith Barney affirmatively tried to
On May 19, 1987, Smith Barney's Chairman and President (the individual defendants) held a
Lama was informed that Smith Barney had secured a merger partner who was prepared to purchase
With knowledge of the likely substantial tax consequences of the merger, Lama sought to
As a result of the merger, Lama received over $163 million for its Smith Barney stock (a
Plaintiffs then brought this action in State court, alleging fraud and misrepresentation,
The Appellate Division modified and granted defendants' motion to dismiss the complaint in
h contract occurred and the prospect of a contract was too speculative and, assuming the truth of
In an action to recover damages for fraud, the plaintiff must prove a misrepresentation or a
The complaint does not allege how defendants' failure to disclose that Primerica was the
Nor does the out-of-pocket rule allow for recovery of the payment of taxes, couched as
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