MIDDLE DISTRICT OF TENNESSEE

NASHVILLE DIVISION

In re PRISON REALTY SECURITIES ) Civil Action No. 3:99-0452

LITIGATION )

_______________________________ ) CLASS ACTION

)

This Document Relates To All Actions ) Judge Campbell/Griffin

Consolidated with Charles ) PLAINTIFFS’ MEMORANDUM OF

_______________________________ ) POINTS AND AUTHORITIES IN

SUPPORT OF THEIR APPLICATION

FOR RELIEF UNDER RULE 64,

F.R.C.P., AND FOR A TEMPORARY

RESTRAINING ORDER AND

PRELIMINARY INJUNCTION UNDER

RULE 65, F.R.C.P. BANNING

IMPROPER CASH PAYMENTS

I. Introduction

On August 23, 2000, defendants and counsel for the class action and derivative plaintiffs began executing a Memorandum of Understanding ("MOU"). Based on months of negotiations followed by mediation and defendants’ of repeated statements that Prison Realty Trust, Inc. ("Prison Realty" or the "Company") severely lacked liquid assets, the parties entered into a Memorandum of Understanding (MOU). The MOU contained the following provision to prevent Prison Realty stockholders and the members of the other settlement classes from suffering additional harm:

Payments to Certain Third Parties

f. All payments to Sodexho , Baron and holders of JJFMSI, PMSI

and OpCo equity will be paid in PZN common stock rather than

cash.

See August 29,2000 Prison Realty Securities and Exchange Commission ("SEC") Form 8-K at 9 attached to the Declaration of George E. Barrett in Support of Plaintiffs’ Application for a Temporary Restraining Order and Preliminary Injunction Banning Improper Cash Payments ("Barrett Decl.") as Ex. A. On September 5, 2000, only three days after the last defendant executed the MOU (whereby plaintiffs agreed to stay discovery and further litigation, including at least 20 depositions scheduled for late August and early September), defendants filed a supplement to Prison Realty’s July 31, 2000 Form 14 Proxy Statement with the SEC concerning the proposed corporate restructuring. Barrett Decl., Ex. B. With a vote on the restructuring set for September 12, 2000, defendants revealed for the first time that they intended to blatantly violate the terms of the MOU by providing cash payments totaling $13.325 million to certain Juvenile and Jail Facilities Management Services, Inc. ("JJFMSI") and Prison Management Services, Inc. ("PMSI"), equity holders without immediately arranging to pay 50% of that amount, or $6,612,000 to the settlement classes, as required by the MOU.1 With the corporate restructuring vote scheduled for September 12, defendants’ SEC filing and subsequent actions acknowledge an intent to breach the terms of the MOU and disburse over $13 million, irreparably harming plaintiffs and the stockholder classes.

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1JJFMSI and PMSI are two of the three privately-held companies spun off from Prison Realty in the January 1, 1999 merger.

In relevant part, the MOU mandates that:

f. All payments to Sodexho, Baron and holders of JJFMSI, PMSI and OpCo equity will be paid in PZN common stock rather than cash. All payments to Blackstone will be made in PZN common stock or through a transfer of assets, rather than cash. The parties agree to develop in good faith some mechanism where the value of any assets transferred to Blackstone shall be agreed to by the financial advisors of the parties. If any cash consideration, other than the severance arrangements described in PZN’s Proxy, is paid to any PZN insider and/or affiliate in connection with and/or as part of the proposed transactions or other liquidity event, an amount equal to 50% of such payments shall be immediately paid to the settlement classes.

g. Except for certain severance arrangements described in PZN’s Proxy, no payments of any kind shall be made to any PZN/OpCo insider or affiliate as part of any merger or liquidity event other than for their ratable interest in OpCo, JJFMSI or PMSI as described above.

Barrett Decl., Ex. A at 9.

Plaintiffs here move the Court to prevent defendants’ breach of the agreement reached by the parties. By this application, plaintiffs seek, under Rule 64 and 65 F.R.C.P. for sequestration of funds to prevent the fraudulent conveyance of those funds; and/or to seek a temporary restraining order ("TRO") and, thereafter, a preliminary injunction, in order to temporarily enjoin the $13.325 million defendants intend to distribute to PMSI and JJFMSI insiders and affiliates Peaches Simpkins and Jack Dalton.

II. Factual Background to the Settlement

A. Defendants’ Fraud in Connection with the Merger of CCA and Old PZN

On January 1, 1999, Corrections Corporation of America ("CCA") and CCA Prison Realty Trust, Inc. ("Old PZN") merged to form Prison Realty. As part of the merger, Prison Realty issued approximately 105 million shares of common stock pursuant to a Joint Proxy/Prospectus in exchange for all outstanding shares of CCA and Old PZN. The Joint Proxy also detailed the creation of private management companies, OpCo. JJFMSI (Juvenile and Jail Facilities Management Services, Inc.) and PMSI (Prison Management Services, Inc.), to control the CCA and Old PZN prison management contracts in accordance with real estate investment trust ("REIT") tax requirements.2

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2As part of the merger, longtime friends of defendant Doctor Crants, Peaches Simpkins and Jack Dalton, were allowed to purchase controlling stakes in PMSI (for $3 million) and JJFMSI (for $2.5 million), respectively.

Defendants represented that Prison Realty and OpCo would enter into a series of agreements, including lease agreements pursuant to which OpCo would lease detention facilities from Prison Realty and would make rental payments to Prison Realty at fair market rates. OpCo and Prison Realty also were to enter into agreements Linder which: (i) OpCo would render services "in the construction and development of correctional and detention facilities" (the "Services Agreement"); (ii) enter into leases with Prison Realty (the "Operating Leases"); and (iii) OpCo would receive tenant incentive payments from Prison Realty pursuant to a tenant incentive agreement (the "Tenant Incentive Agreement"). See Consolidated Complaint for Violations of the Federal Securities Laws, filed November 4, 1999.

Based on defendants’ false representations, Old PZN shareholders approved the merger. Defendants, however, failed to disclose the following facts in the Joint Proxy or in the initial public offering roadshow presentations:

• That as of January 1, 1999, occupancy levels at detention facilities owned by CCA/Old PZN and managed by CCA had suffered dramatic declines in occupancy rates, falling to historic lows of 80.4% as a result of (i) a "freeze" on prisoners from the District of Columbia’s Department of Corrections and a slowdown from the Federal Bureau of Prisons following a July 1998 incident at the Youngstown facility; and (ii) the large number of unoccupied beds brought on line by Old PZN/CCA during 4Q98;

• That the $560 per bed Tenant Incentive Fee and the Services Agreement Fee of 5% of capital expenditures plus $840 per new bed to be paid by Prison Reality to OpCo could not possibly meet the cash flow estimates claimed by defendants in connection with the merger and therefore OpCo could not cover the operating expenses incurred by it during the ramp-up period for new facilities;

• That prior to the merger, CCA had substantially decreased the rate at which it was ramping tip at newly constructed facilities, which further strained revenues without a commensurate decrease in its lease obligations, further adversely impacting OpCo’s financial viability absent a substantial increase in the payments from Prison Realty to OpCo beyond those detailed in the Joint Proxy;

• That defendants did not expect OpCo to obtain a $60 million line of credit at the time of the merger, as OpCo had been able to obtain only a $30 million credit facility, which was obtained only after Prison Realty agreed to guarantee the facility by, among other things, subordinating the interest and lease payments otherwise owed to it by OpCo and agreeing to defer interest payments owed to it;

• That, in desperation to obtain financing of some kind for OpCo given the rapid deterioration in the status of Old PZN/CCA’s business operations in December 1999, Doctor Crants had already agreed to subordinate a material portion of the lease and interest payments to be owed by OpCo to Prison Realty to OpCo’s repayment obligations to its own lender, GE Capital;

• That given the January 1, 1999 occupancy rates at facilities to be managed by OpCo, the terms of the GE Capital Credit Agreement and the standstill agreement executed in connection therewith (the "Standstill Agreement") necessarily prohibited a material portion of the payment of the rental and interest payments from being paid by OpCo to Prison Realty as detailed in the Joint Proxy; and

• That as a result of the merger, Prison Realty was required to record a provision for change in tax status during the first quarter of 1999 of approximately $83.2 million.

Defendants’ misconduct following the merger was equally egregious. Defendants continued to mislead the public about the true conditions of Prison Realty and OpCo and their secret agreements to increase payments from Prison Realty to OpCo. For example, on May 5, 1999, defendants publicly discussed the strength of Prison Realty’s operations following the merger while failing to disclose that:

• Prison Realty was not generating "unparalleled" returns, but was, in fact, artificially boosting its funds from operations ("FFO") by agreeing to transfer $18.1 million to OpCo in order to allow OpCo to turn around and make its lease payments to Prison Realty (thereby allowing Prison Realty to report artificially inflated FFO and avoid being disqualified as a REIT which would have otherwise resulted from OpCo’s insolvency);

• During 1Q99 the Prison Realty Board had already implemented an agreement to retroactively give away $18.1 million to OpCo and make pervasive changes to the Tenant Incentive Agreement and Services Agreement between OpCo and Prison Realty, designed to effect an annual transfer of approximately $80 million away from Prison Realty to OpCo. These material adverse changes were contained in an Amended and Restated Tenant Incentive Agreement agreed to by Doctor Crants on behalf of OpCo and by Robert Crants on behalf of Prison Realty, and

• Because of the above, Prison Realty could not possibly issue even 50% of the amount of debt claimed by Doctor Crants as the market was unwilling to purchase Prison Realty debt even at interest rates that were 40% higher than the rates claimed by Doctor Crants given the precariousness of Prison Realty and OpCo financial position.

Finally, On May 14, 1999, after the close of the market, Prison Realty CEO Doctor Crants convened a nationwide conference call and, in stark contrast to Doctor Crants1 assurances just nine days earlier that Prison Realty’s operations had been "in line with expectations" and that Prison Realty’s "size and capital structure substantially enhance our competitive position and ... allow us to optimize shareholder value," defendants disclosed for the first time that prior to the May 5, 1999 conference call:

• Prison Realty had agreed to retroactively transfer $18.1 million to OpCo;

The $840 per bed Tenant Incentive Fee had been increased by approximately 400% to $4,000 per bed, totaling an additional $80 million per year siphoned from Prison Realty; and

• Prison Realty had agreed to pay a new "Business Development" fee equal to 4.5% of expenditures by OpCo for various services, including the very services for which Prison Realty was already paying to OpCo pursuant to the Service Agreement Fee, stealing more money from publicly held Prison Realty for privately owned OpCo.

These dramatic changes disclosed by defendants on May 14, 1999 confirmed that the arrangements between Prison Realty and OpCo had not been set at "fair market" rates at the time of the merger or, alternatively, were designed simply to transfer hundreds of millions of dollars (over the duration of the amended tenant incentive agreement) from Prison Realty and its shareholders to insiders at OpCo.

Defendants unequivocally confirmed their wrongdoing by first admitting not only that they completely reconfigured the relationship between Prison Realty and OpCo on May 4, 1999 - one day prior to the May 5, 1999 release/conference call - and later admitting that they agreed to increase payments to OpCo "during the first quarter of 1999." Following defendants’ admissions, Prison Realty’s stock price plummeted and has not stopped falling, declining to below $2-1/4 per share, a wipeout of billions of dollars in market capitalization.

B. Defendants’ Continuing Deception

Plaintiffs in this and the other actions have proceeded in settlement negotiations with an understanding that plaintiffs’ cases on the merits were extremely strong. Nevertheless, plaintiffs understood the need to seek resolution of the actions in a manner to simultaneously obtain the largest recovery possible for the classes and preserve Prison Realty as a going concern. From the outset, defendants have asserted that the Company faced significant financial hurdles and that the threat of bankruptcy was very real. Declaration of Dr. Greggory A. Brauer, Ph.D., Principal Decision Design Consultants ("Brauer Decl.") dated 9/10/00 at ¶3. Prison Realty, plaintiffs were lead to believe, faced huge debts and had little or no cash resources. Accordingly, plaintiffs demanded that the settlement be structured to conserve the Company’s post-consolidation cash assets in order to protect the viability of Prison Realty. See Brauer Decl., ¶¶4-8. The settlement of the litigations on August 23, 2000 was driven, in part, by defendants’ efforts to facilitate a corporate restructuring set for shareholder vote on September 12, 2000. In agreeing to settle the class and derivative actions prior to the corporate restructuring, plaintiffs consented to a settlement fund which included no cash payments from Prison Realty or the individual defendants, but demanded in turn that no cash payments be made to holders of JJFMSI, PMSI or OpCo equity, See Brauer Decl., ¶¶6-8. Pursuant to the repeated assertion that Prison Realty could not, without serious detriment, make cash payments, plaintiffs agreed to the terms of the following settlement as embodied in the August 23, 2000 MOU. See MOU attached as Exhibit A to the Barrett Declaration.

Immediately upon execution, defendants filed the MOU with the SEC and issued a press release touting the settlement. See Ex. A to Barrett Decl. at 12-14. With the vote on corporate restructuring only two weeks away, defendants sought to ensure Prison Realty investors that the class and derivative actions had been settled, symbolically ushering in a new era for the Company. The MOU specifically provided that " [t]he parties shall cooperate in good faith and use their best efforts to implement the settlement." Barrett Decl., Ex. A at 0.

Unbeknownst to in investors or plaintiffs, defendants had already prepared to violate the terms and good faith requirements of the MOU, stripping Prison Realty of over $13 million in desperately needed cash. Brauer Decl., ¶¶9-11. On September 1, 2000, before the ink on the MOU was even dry, defendants agreed that JJFMSI and PMSI equity holders if — specifically defendant Doctor Crants’ longtime friends Peaches Simpkins and Jack H. Dalton — would receive from Prison Realty more than $ 13 million in cash to buy back their equity interests in PMSI and JJFMSI, affiliates of PZN. See Barrett Decl., Exs. B-D. Defendants flagrantly ignored the MOU provisions barring cash payments and requiring good faith cooperation agreed to by them just days before, Moreover, despite public and private claims that Prison Realty was facing bankruptcy and had no cash assets, defendants were siphoning off $ 13.325 million to insiders and affiliates of defendants. Brauer Decl., ¶3.

Shocked by defendants’ unabashed breach of the good faith and cash payment prohibition provisions of the MOU, plaintiffs demanded that the cash payments be stopped immediately. Barrett Decl., Exs. E-F. In the alternative, plaintiffs requested compliance with the MOU’s penalty provision, requiring payment to the settlement classes of an amount equal to 50% of any improper cash disbursements. Defendants have neither rescinded their intention to give away cash to the JJFMSI and PMSI insiders nor agreed to make the penalty payments to the settlement classes. Barrett Decl., Ex. G. Rather, defendants have shown every intention to proceed with the September 12, 2000 payments, in violation of the MOU and irreparably harming plaintiffs.

III. Plaintiffs Are Entitled to an Order Enjoining the Cash Payouts  Pending Resolution of the Settlement or a Trial on the Merits

Injunctive relief is imperative here to facilitate the implementation of the MOU and to prevent irreparable harm to plaintiffs and the class members. The parties expressly asserted that the MOU was negotiated in good faith and compromises were struck based, in part, on defendants’ assertion that any payments to JJFMSI and PMSI shareholders would be in PZN common stock, not cash. Defendants’ efforts to siphon off over $ 13 million in cash to the JJFMSI and PMSI shareholders, announced only days after the MOU was executed, is in direct violation of the parties’ agreements and threatens not only the settlement, but also plaintiffs’ ability to recover monetary damages.3

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3The MOU contemplates that cash payments could be made to JJFMSI and PMSI shareholders, but only if defendants provided the settlement classes with a penalty payment equal to 50% of the disbursed cash payments: "If any cash consideration, other than the severance arrangements described in PZN’s Proxy, is paid to any PZN insider and/or affiliate in connection with and/or as part of the proposed transactions or other liquidity event, an amount equal to 50% of such payments shall be immediately paid to the settlement class." Barrett Decl., Ex. A at 9. Plaintiffs have requested confirmation that defendants have the resources to make the penalty payments and will do so, Barrett Decl., Ex. E. In reply, defendants’ counsel has only represented that the MOU should remain in effect, but refused to stop the cash transfers to JJFMSI and PMSI shareholders or provide any assurances that the payments will not adversely impact plaintiffs’ ability to receive any penalty payments or recover damages. Barrett Decl., Ex. F.

A. The Court has Authority to Freeze by Injunction the $13.325 Million Transfer of Funds

District courts are empowered to grant injunctive relief freezing assets, if necessary, to prevent defendants from dissipating assets or detrimentally breaching contractual terms. FDIC v. First Heights Bank, FSB, No. 95-CV-72722, 1998 U.S. Dist. LEXIS 21524, at *2 (E.D. Mich. May 19, 1998). Use of the court’s power to issue injunctive relief is highly warranted where, as here, a pervasive fraud has occurred.4 The Sixth Circuit has held that Courts shall consider four factors in deciding whether to issue a TRO or preliminary injunction:

(1) whether the movant has shown a strong or substantial likelihood

of success on the merits;

(2) whether the movant has demonstrated irreparable injury;

(3) whether the issuance of a preliminary injunction would
cause substantial harm to others; and

(4) whether the public interest is served by the issuance of an injunction,

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4See SEC v. General Refactories Co., 400 F. Supp. 1248, 1260 (D.D.C. 1975) ("a freeze of assets may be appropriate to assure compensation to those who are victims of a securities fraud").

Rock & Roll Hall of Fame & Museum v. Gentile Prods., 134 F.3d 749, 753 (6th Cir. 1998); see also Parker v. United States Dep’t of Agric., 879 F.2d 1362 (6th Cir. 1989).5

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5The four factors courts consider in granting a TRO are identical to the standards for a preliminary injunction unction. See Moltan Co. v. Eagle-Picher Indus., 55 F.3d 1171, 1175 (6th Cir. 1995).

The foregoing are each factors to be balanced as a whole, "‘not prerequisites that must be met... individually. Mascio v. Public Employees Ret. Sys., 160 F.3d 310, 313 (6th Cir. 1998) (quoting In re De Lorean Motor Co., 755 F.2d 1223, 1229 (6th Cir. 1985)). Injunctive relief of the type sought here is appropriate whenever the movant "at least shows serious questions going to the merits and irreparable harm which decidedly outweighs any potential harm to the defendant if an injunction is issued."’ Frisch’s Rest., Inc. v. Shoney’s, Inc., 759 F.2d 1261, 1270 (6th Cir. 1985) (citation omitted).

B. Defendants’ Announced Intention to Violate the MOU Warrants

Injunctive Relief

1. Plaintiffs Have Established the Likelihood of Success on

the Merits

In determining the probability of success on the merits, movants need only demonstrate a fair chance of success and the district court is not required to make any binding findings of fact. Plaintiffs respectfully submit that both the likelihood of success on the underlying fraud claims, as well as on any motion to enforce the provisions of the MOU, are more than sufficient to support a TRO.

a. Defendants’ Acknowledged Violations of State and

Federal Securities Laws Ensures the Likelihood of

Success on the Merits

Defendants’ egregious violations of federal securities laws, including their admitted deception in April and May 1999, are sufficient to establish plaintiffs’ likelihood of success on the underlying merits of plaintiffs’ claims. Indeed, plaintiffs’ view of the settlement negotiations and MOU was premised on the assumption that plaintiffs would prevail against defendants. Plaintiffs’ submissions to date evidence defendants’ violations of federal and state securities laws and the only real question is defendants’ ability to sustain a substantial judgment. Nevertheless, after expressly agreeing to refrain from doing so, defendants now attempt to make $13.325 million in cash transfers in violation of the MOU, further decimating Prison Realty and adversely impacting plaintiffs’ ability to recover damages.

b. Plaintiffs Are Likely to Succeed on an Action

Against Defendants for Breaching the Terms

of the MOU

Payment of the $13.325 million to JJFMSI and PMSI insiders is a clear and unequivocal breach of the MOU. Under federal law, a district court has the inherent power to summarily enforce settlement agreements entered into by parties litigating in a pending case. Cia Anon Venzcolana De Navegacion v. Harris, 374 F.2d. 33, 36 (5th Cir. 1967). The MOU requires defendants to refrain from allowing any such cash payment to the JJFMSI and PMSI insiders, or pay a 50% penalty to the settlement classes for doing so.6 Nevertheless, Prison Realty’s September 5, 2000 proxy supplement and subsequent correspondence confirm that defendants specifically intend to breach the MOU.

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6In the alternative, defendants are required to make immediate cash payment to the settlement classes of approximately $6.6 million in accordance with the MOU’s penalty provision.

The MOU, like any contract, must be given a reasonable construction which will uphold and enforce the instrument, rather than a construction which would render it meaningless and ineffective or which would lead to an absurd result. Tennessee law mandates that defendants are required to comport with the terms of the MOU or face liability for breach of contract. See EnGenius Entm’t v. Herentan, 971 S.W.2d. 12 (Tenn. Ct. App. 1997). The parties crafted the MOU to reflect their agreement on all of the essential terms of the settlement and executed the MOU to put those terms in effect. Thus, plaintiffs immediately ceased discovery and further litigation efforts, Defendants indicated their consent to the binding nature of the MOU, filing the MOU with the SEC and issuing a press release to that effect. Barrett Decl., Ex. A. Apparently, defendants sought only to obtain the benefits of the settlement without abiding by its terms.

While the MOU contains language to the effect that it is non-binding and subject to the execution of a stipulation of settlement, the terms and actions imposed by the parties establish the MOU is an express contract in accordance with Tennessee law. See EnGenius, 971 S.W.2d at 14 ("‘[m]anifestations of assent that are in themselves sufficient to conclude a contract will not be prevented from so operating by the fact that the parties also manifest an intention to prepare and adopt a written memorial thereof’") (quoting The Restatement (Second) of Contracts, §27). Thus, defendants’ cash payments to JJFMSI and PMSI insiders — without immediately providing penalty payments to the settlement classes — is a clear breach of the MOU.

Even if the MOU is deemed not to be an express contract, there can be no question that defendants’ actions constitute a breach of an implied contract. In order to state a cause of action for breach of implied contract, plaintiffs need only establish: (1) a benefit conferred upon the defendant by the plaintiff-, (2) appreciation by the defendant of such benefit; and (3) acceptance of such benefit under such circumstances that it would be inequitable for him to retain the benefit without payment of the value thereof Haynes v. Dalton, 848 S.W.2d 664, 666 (Tenn. Ct. App. 1992) (quoting Paschall’s, Inc. v. Dozier, 407 S.W.2d 150, 155 (Tenn. 1966)). Here, defendants received the immediate benefit of staying discovery and informing all current Prison Realty shareholders that the class and derivative litigations had been settled prior to the September 12, 2000 shareholder vote. Defendants were facing ongoing discovery and litigation and faced a difficult vote in connection with the corporate restructuring. Defendants immediately appreciated and accepted the benefits conferred by the MOU, issuing press releases and disseminating the SEC filing to that effect. Defendants recognized that the MOU lifted the cloud of shareholder litigation and aided the prospects of the planned corporate restructuring. In return for conferring these benefits, plaintiffs were assured that JJFMSI and PMSI insiders, among others, would not be granted cash payments in the restructuring and that reasonable efforts would be taken to ensure that all liquid assets were used to benefit Prison Realty’s ongoing operations. Having derived the necessary benefits from the MOU, defendants now threaten to breach their agreement and cause further damage to plaintiffs and Prison Realty.

c. The Settlement Classes Detrimentally Relied

on the Settlement Terms and Defendants’

Agreement Not to Make Cash Payments to

JJFMSI and PMSI Insiders

Plaintiffs have suffered harm due to their reliance on the terms of the MOU. This further supports the likelihood plaintiffs will succeed on a claim of promissory estoppel. Under such claim:

[W]hen one... by his promise induces another to change his situation, a repudiation of the promise would amount to a fraud. Where one makes a promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee, and where such promise does in fact induce such action or forbearance, it is binding if injustice can be avoided only by enforcement of the promise.

Foster & Creighton Co. v. Wilson Contracting Co., 579 S.W.2d 422, 427 (Tenn. Ct. App. 1978). Here, plaintiffs not only stayed the litigation, but halted the very discovery that would have further confirmed defendants’ fraudulent conduct and the financial condition of the consolidated company. Plaintiffs detrimentally relied on defendants’ representations that the consolidated company had no cash assets to satisfy plaintiffs’ damages, as well as the representations embodied in the MOU that no cash payments would be made to JJFMSI and PMSI shareholders. See Brauer Decl., ¶¶3-8. Defendants’ assurances induced plaintiffs to enter into the MOU, thereby supporting Prison Realty’s restructuring efforts and lifting the threat of discovery and litigation. Defendants’ subsequent efforts to evade their representations and agreements by expending $13.325 million in cash are impermissible and should not be tolerated. This is especially trite in light of the fact that defendants agreed to expend over $5 million in cash just three days after the last defendants’ sign attire was placed on the MOU.

2. Irreparable Harm Will Result if the Cash Payments Are Made

The purpose of the TRO and preliminary injunction here is to preserve the status quo so that defendants cannot evade the requirements of the MOU or any judgment against them. The possibility that property will be irretrievably dissipated and lost "is itself sufficient to support a finding of irreparable injury." Republic of Panama v. Air Panama Internacional S.A., 745 F. Supp, 669, 674 (S.D. Fla. 1988). In the absence of the requested preliminary injunctive relief, defendants have confirmed that Prison Realty will improperly disburse with $13.325 million in cash as of September 12, 2000. The freeze order is particularly appropriate in light of defendants’ standing assertion that Prison Realty has virtually no liquid assets and recent statements that the Company is prepared to file for bankruptcy. See Brauer Decl., ¶3. Prison Realty’s March 30, 2000 Form 10-K filing with the SEC included the Company’s auditor’s opinion that "matters concerning [Prison Realty] and CCA raise substantial doubt about the Company’s ability to continue as a going concern" and company press releases raise the specter of bankruptcy. Brauer Decl., ¶3. The $13.325 million the defendants intend to give away in violation of the MOU is necessary to maintain the viability of Prison Realty, ensure the integrity of the settlement and, if necessary, is likely to be an important source of recovery for plaintiffs under a contractual claim to enforce the settlement.

3. The Balance of Hardship Tips Sharply in Favor

of the Settlement Classes

The Court must also balance the relative hardship to the parties if injunctive relief is not granted. Rock & Roll Hall of Fame, 134 F.3d at 753. The settlement classes are composed of thousands of public investors in Prison Realty. These investors have endured hundreds of millions of dollars in losses and have spent considerable time negotiating a settlement to recover a portion of those losses and prevent future fraudulent behavior. Defendants’ have repeatedly claimed that Prison Realty could not contribute any cash in connection with a settlement of the pending actions. Yet, if injunctive relief is not granted, Prison Realty will deplete, via these transfers, what little liquid assets are available to the consolidated company.

In contrast, the hardship to Prison Realty and defendants from the issuance of a TRO would be minimal. Plaintiffs only request injunctive relief enjoining Prison Realty and the signatories to the MOU from transferring cash to affiliates or insiders, including the JJFMSI and PMSI insiders, pending an evidentiary hearing before the Court in the very near future. And, the TRO does not prevent payments from being made in the form of PZN common stock rather than cash. Thus, the proposed injunctive relief is narrowly tailored to prevent improper cash payments.

4. The Public Interest Favors Granting Preliminary

Injunctive Relief

Finally, the Court must evaluate the impact of injunctive relief on the public interest, Rock & Roll Hall of Fame, 134 F.3d at 753. Here there are the dual public interests in keeping the securities markets free of fraud and ensuring good faith negotiations to promote pretrial settlement of class action and derivative lawsuits. Courts have long recognized "[t]he public interest in preserving the integrity of the marketplace, and the enforcement of federal and state laws designed to protect investors and consumers, sharply favors the plaintiffs." Nguyen v. FundAmerica, Inc., 1990 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶95,498, at 97,586 (N.D. Cal. 1990). Likewise, public policy strongly favors pretrial settlements to prevent undue burden on the judicial system and prevent delay in the recovery of damages. In re U.S. Oil & Gas Litig., 967 F.2d 489,493 (1 11th Cir. 1992) (citing Cotton v. Hinton, 559 F.2d 13 326, 1331 (5th Cir. 1997)). Moreover, there can be no question that the public interest is served by injunctive relief preventing any unwarranted breach of contracts or settlement terms. The public interest, like each of the requisite factors, weighs heavily in support of granting injunctive relief.

IV. In the Alternative, the Court Has the Authority to Sequester the

Attempted Dissipation of These Assets Pursuant to Fed. R. Civ.

P. Rule 64 and Tennessee Law

Plaintiffs also have moved the Court Pursuant to Rule 64 of the Federal Rules of Civil Procedure for Relief in regards to the $13,325,000 cash transfer to JJFMSI and PMSI insiders. Rule 64 states:

[D]uring the course of an action, all remedies providing for seizure of... property for the purpose of securing satisfaction of the judgment ultimately to be entered... are available under the circumstances and in the manner provided by the law of the state in which the district court is held...

The Tennessee Rule of Civil Procedure Rule 64 is virtually identical to the Federal Rule 64.

In Oliphant v. Moore, 155 Tenn. 359, 293 S.W.541 (1927), the Tennessee Supreme Court held that a tort claimant is a creditor for purpose of being able to obtain a court injunction against "conveyance and transfer of property collusively made with ‘intent or purpose to delay, hinder or defraud creditors of their just and lawful actions, suits, debts, accounts, damages..." Id. at 542 (quoting Rosen v. Levy, 120 Tenn. 642, 648, 113 S.W. 1042 (1908)). Moreover, the fact that plaintiffs are applying for relief under Fed. R. Civ. P. Rule 65 does not preclude also seeking relief under Fed. R. Civ. P. Rule 64. Sequa Capital Corp. v. Nave, 921 F. Supp. 1072 (S.D.N.Y. 1996).

The parties to this settlement have entered into the MOU to effectuate the settlement of this litigation, part of which provides that the defendants shall not do exactly what they attempt to do in this instance, that is, make cash payments exceeding # 13 million to affiliates and insiders.

The plaintiffs respectfully request the Court to require the defendant Prison Realty to sequester the funds, maintaining the cash assets in its possession for the operation of the corporation pursuant to the MOU and not to engage in this improper transfer.

V. Conclusion

For the foregoing reasons, plaintiffs respectively request that the Court issue a TRO and preliminary injunction to prevent the disbursement of $13.325 million in cash payments to JJFMSI and PMSI insiders.

DATED: September 11, 2000 Respectfully submitted,

BARRETT, JOHNSTON & PARSLEY

GEORGE E. BARRETT, #2672

DOUGLAS S. JOHNSTON, JR., #5782

_________________________________

GEORGE E. BARRETT

217 Second Avenue, North

Nashville, TN 37201

Telephone: 615/244-2202

CHERNAU, CHAFFIN & BURNSED

STANLEY M. CHERNAU

LINDA BURNSED

Sun Trust Center

424 Church Street

Nashville, TN 37219

Telephone: 615/244-5480

Liaison Counsel for Plaintiffs

MILBERG WEISS BERSHAD

HYNES & LERACH LLP

WILLIAM S. LERACH

DARREN J. ROBBINS

SPENCER A. BURKHOLZ

TOR GRONBORG

600 West Broadway, Suite 1800

San Diego, CA 92101

Telephone: 619/231-1058

GIRARD & GREEN LLP

DANIEL C. GIRARD

ROBERT A. JIGARJIAN

160 Sansome Street, Suite 300

San Francisco, CA 94104

Telephone: 415/981-4800

Co-Lead Counsel for Plaintiffs

CERTIFICATE OF SERVICE

I hereby certify that a true and exact copy of the foregoing has been served via the method indicated on the following on this the 11th day of September, 2000:

HAND DELIVERY

WALKER, BRYANT & TIPS

Robert J. Walker

John C. Hayworth

2100 First Union Tower

150 Fourth Avenue North

Nashville, TN 37219

Telephone: 615/313-6000

Facsimile: 615/313-6001

FACSIMILE AND U.S. MAIL

SIMPSON, THACHER & BARLETT

Bruce D. Angiolillo

Megan P. Davis

425 Lexington Avenue

New York, NY 10017-3954

Telephone: 212/455-2000

Facsimile: 212/455-2502

HAND DELIVERY

BASS, BERRY & SIMS

Mitchell Walker

2700 First American Center

Nashville, TN 37238-2700

Telephone: 615/742-6200

Facsimile: 615/742-2775

FACSIMILE AND U.S. MAIL

ROPES & GRAY

John P. Bucker

One International Place

Boston, Massachusetts 02110-2524

Telephone: 617/951-7000

Facsimile: 617/951-7050

GEORGE E. BARRETT