Marriott bondholders' suit thrown out

January 26, 1995|By Timothy J. Mullaney | Timothy J. Mullaney,Sun Staff Writer

A federal judge in Baltimore yesterday threw out a bondholder suit against the old Marriott Corp. that claimed the company committed securities fraud when it launched a 1992 bond offering without disclosing internal discussions about dividing the company into two separate firms.

Senior Judge Alexander Harvey II said the investors who sued Marriott presented so little evidence at last year's trial that no rational jury could have found the company broke the Securities Exchange Act of 1934.

The jury at the actual trial failed to reach a verdict, but jurors said that most of the panel initially favored Marriott but that by the end of the deliberations they were leaning toward the bondholders. But the majority only wanted to award nominal damages, such as $1, not the $18 million bondholders sought.

Judge Harvey's 33-page opinion said the biggest flaw in the case brought by PPM America Inc. and other bondholders was that the investors could not show that Marriott had settled on a plan to break up the company by the time it sold the disputed bonds in April 1992.

Federal law requires that plaintiffs in a securities fraud case prove that management either said something false or made a deceptive omission that artificially affected the value of the company's securities. That includes an obligation to disclose upcoming transactions, but only if they are certain enough to occur that the information is material to the reasonable investor.

"Marriott's consideration between January and April of 1992 of new strategies for the future was speculative and tentative," Judge Harvey wrote. "No significant and purposeful action was taken by the company's top management in this period with regard to the splitting of the company into two parts."

Plaintiffs also must prove that they relied on management's statements or omissions when buying or selling the securities and that management made the false statements knowing they were wrong or recklessly disregarding their falsehood.

"We believe we presented enough facts that the case should be decided by a jury and not a judge. He took it away," said Lawrence Kill, a New York attorney representing the bondholders, who had sought $18 million in damages. "I think there will be an appeal. I just can't speak for all the plaintiffs because I haven't been able to speak to them all yet."

Marriott's response was gleeful.

"We win! We win! We win!" said Stephen F. Bollenbach, Host Marriott's chief executive, who was chief financial officer of Marriott Corp. "It's been a long, tough time. It was a vicious nuisance."

The $400 million of bonds from the April offering lost up to 30 percent of their value after Marriott disclosed a plan to split the company into Marriott International Inc. and Host Marriott Corp. in October 1992.

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.