Corporate Mismanagement & Shareholder Derivative Litigation

Sanchez Energy Corporation Derivative Litigation

On December 16, 2013, Chimicles & Tiekllis LLP filed a derivative action complaint on behalf of Sanchez Energy Corporation (“Sanchez Energy” or the “Company”) in the Court of Chancery of the State of Delaware (the “Action”).  The Action alleges wrongdoing by the Sanchez Energy directors for causing the Company to acquire an interest in the Tuscaloosa Marine Shale from (“TMS Assets”) from Sanchez Resources LLC (“Resources”), an entity affiliated with Sanchez Energy’s CEO, Tony Sanchez, III, and Executive Chairman Tony Sanchez, Jr. (together the “Sanchezes”) at a grossly excessive price, exposing Sanchez Energy to substantial increased risk.

On August 8, 2013, Sanchez Energy announced it had acquired a working interest in the TMS Assets from Resources.  The Sanchezes own a portion of the equity of Resources.  Moreover, the CEO of Resources is Eduardo Sanchez, son and brother to the Sanchezes.  The transaction is valued at $78 million or roughly $2,500 an acre.  The per acre price is exponentially higher than the $145 an acre paid by Goodrich Petroleum Corp. for 172,000 acres in the Tuscaloosa Marine Shale just one month prior.  Resources retained a 50% working interest in the TMS Assets.  The transaction was approved by the Sanchez Energy board of directors and was not subject to a vote of Sanchez Energy’s public shareholders.

The Sanchezes currently own approximately 17% of Sanchez Energy’s outstanding common stock.  Based on the Sanchezes’ control of a significant voting stake and power at the Board level, the Sanchezes had the ability to consummate the transaction on terms favorable to themselves and detrimental to the interests of Sanchez Energy and its stockholders.

After the announcement of the Transaction, several actions were filed.  On December 20, 2013, the Court consolidated all of the actions and Chimicles & Tikellis LLP was appointed Co-Lead Counsel.  Co-Lead Counsel filed a Verified Consolidated Stockholder Derivative Complaint (“Complaint”) (available here) on January 28, 2014.  Pursuant to the Stipulation and Scheduling Order (“Scheduling Order”) entered by the Court of February 28, 2014.

On April 1, 2014, Defendants filed several motions to dismiss the Complaint.  Plaintiffs’ brief in opposition to the motions to dismiss will be filed by May 23, 2014 and Defendants’ reply briefs will be filed by June 20, 2014.  Currently a date for oral argument on the motions to dismiss has not been scheduled.

W2007 Grace Acquisition I, Inc. Preferred Shareholder Litigation

Chimicles & Tikellis (“C&T”) initiated a class action on behalf of all current and former holders of W2007 Grace 8.75% Series B Cumulative Preferred Stock and W2007 Grace 9.00% Series C Cumulative Preferred Stock (collectively, the “Preferred Stockholders”) against defendants W2007 Grace Acquisition I, Inc. and its Board of Directors, The Goldman Sachs Group, Inc., Goldman Sachs Realty Management L.P., Whitehall Parallel Global Real Estate Limited Partnership 2007, W2007 Finance Sub, LLC, W2007 Grace I, LLC and PDF Holdings LLC (“Defendants”). The class action complaint, filed on September 13, 2013, alleges a classic oppression scenario whereby Defendants have successfully denied Preferred Stockholders any return or benefit to their investment in order to compel Preferred Stockholders to relinquish their stock at an inadequate price.  (See Plaintiffs’ Class Action Complaint). For years, Defendants have withheld information and dividends, making it difficult for shareholders to sell the Preferred Stock or to operate in an efficient market. Recently, it was discovered that Goldman Sachs and its affiliates had caused a sister company to purchase 58.8% of the outstanding Preferred Stock at prices well below the value of the Preferred Stock at the time of sale.  After effectively squeezing out those who hold 60% of the Preferred Stock interest, Defendants announced that the sister company may be considering a tender offer by year end.  As described in the complaint, Defendants are looking to squeeze out all remaining Preferred Stockholders for unfair consideration. As a result of Defendants’ misconduct, Plaintiffs have alleged various breaches of contractual and fiduciary obligations to the Preferred Stockholders.

On October 4, 2013, Defendants filed a notice of removal seeking to transfer the case to the United States District Court for the Western District of Tennessee (W. D. Tenn. Case No. 2:13-cv-02777).  Plaintiffs sought to remand the case back to the Tennessee Chancery Court, but the Federal Court denied that motion finding that there was subject matter jurisdiction over Plaintiffs’ action.  (See Order Denying Remand)

On January 23, 2014, Defendants filed their motion to dismiss Plaintiffs’ amended complaint, which Plaintiffs opposed on March 21, 2014.  (See Plaintiffs’ Brief in Opposition to Defendants’ Motion to Dismiss).  The Federal Court has not decided Defendants’ motion to dismiss.

On February 7, 2014, the federal court entered a Scheduling Order in Case No. 2:13-cv-02777, permitting the parties to commence discovery.  (See Scheduling Order).  Pursuant to the Scheduling Order, Plaintiffs immediately commenced both written and document discovery.

On May 16, 2014, Plaintiffs moved for class certification. (See Plaintiffs’ Brief in Support of their Motion for Class Certification). Defendants took the depositions of named plaintiffs David Johnson, Patrick Lynch, Roberto Verthelyi and Frederick Shearin.

On August 20, 2014, the parties entered into a memorandum of understanding (“MOU”) with respect to a proposed settlement of this lawsuit.  (See Press Release). Specifically, the MOU contemplates the following key settlement terms:

  • The parties will seek certification of two settlement classes comprised of: (1) persons who hold Preferred Stock as of August 22, 2014 and through the date of the closing of the merger described below; and (2) persons who hold or held Preferred Stock and sold some or all of their Preferred Stock on or after October 25, 2007 and suffered a loss. Both settlement classes are subject to certain requirements and exclusions.
  • W2007 Grace will be merged with and into a new company, and holders of Preferred Stock at the time of merger will receive $26.00 per share upon surrender of their shares of Preferred Stock. If the Court preliminarily approves the Stipulation of Settlement, W2007 Grace will distribute a proxy statement seeking the preferred shareholders’ approval of the merger and certain amendments to the W2007 Grace charter, which will be described in the proxy statement. W2007 Grace will consummate the merger only if it obtains the requisite shareholder and Court approvals.
  • W2007 Grace will pay $6.0 million into a settlement fund which, following the deduction of certain expenses, will be distributed in accordance with a plan of allocation prepared by plaintiffs to persons who sold W2007 Grace Preferred Stock on or after October 25, 2007 and suffered a recognized loss. Defendants and their affiliates will not be eligible to receive a settlement fund distribution. Private sales to defendant PFD Holdings, LLC are also excluded.
  • Any balance remaining in the settlement fund will be distributed pro rata to persons who hold Preferred Stock as of August 22, 2014 and continue to hold their Preferred Stock at the time of the merger.
  • Subject to Court approval, W2007 Grace will pay plaintiffs’ attorneys’ fees and certain litigation expenses separately so as not to diminish the settlement consideration being paid to class members.

 

The MOU and Settlement are contingent upon, among other things, the parties drafting and executing a definitive Stipulation of Settlement, the merger, and obtaining relevant Court approvals. 

 

For more information, please see the attached FREQUENTLY ASKED QUESTIONS.

Cole Credit Property Trust III, Inc. Class and Derivative Litigation

On March 20, 2013, Chimicles & Tikellis LLP initiated a shareholder class action and derivative action in the Circuit Court for Baltimore City, with the caption Strub v. Cole Holdings Corporation, et al.  The litigation was brought on behalf of Cole Credit Property Trust III, Inc. (“CCPT III”) and a class of CCPT III shareholders against CCPT III’s board of directors, including CCPT III’s founder Christopher Cole, Cole REIT Advisors III, Cole Holdings Corporation and other affiliated Cole Holdings entities (collectively “defendants”).

Plaintiff’s direct and derivative claims arise out of a related-party Merger approved and executed by defendants which caused CCPT III, a non-listed externally advised real estate investment trust (“REIT”), to acquire Cole Holdings Corporation, which was wholly owned by CCPT III’s founder Christopher Cole. Among other things, Plaintiff alleges that the Merger improperly gave Christopher Cole and others an unjustified $150 + million payday and exit strategy, to the detriment of CCPT III’s shareholders. Plaintiff has also alleged that defendants’ conduct in hastily rejecting offers made by American Realty Capital Properties to acquire all of the outstanding shares of CCPT III, in the face of the wrongful self-dealing Merger, were in violation of their fiduciary duties to CCPT III’s shareholders.  Plaintiff Strub sought to enjoin the Merger from closing but his petition for a Temporary Restraining Order was denied.

After Plaintiff Strub filed his action, two other similar lawsuits were filed by other CCPT III shareholders in the Circuit Court for Baltimore City.  At the request of Plaintiff Strub and the other plaintiffs, the Court consolidated the actions, and appointed Chimicles & Tikellis LLP the Chair of the Executive Committee of Interim Lead Counsel.  The consolidated action is captioned as In re Cole Credit Property Trust III, Inc. Derivative and Class Litigation, Lead Case No. 24-C-13-001563.

On May 8, 2013, Plaintiffs jointly filed a Consolidated Amended Complaint (“CAC”) which expands upon the claims asserted in their original complaints.  On June 7, 2013, Defendants moved to dismiss the CAC.  Briefing on the motions was completed by July 29, 2013.  On August 27, 2013, the Court held oral argument on the motions.  On October 22, 2013, the Court dismissed the case with prejudice.  Plaintiffs intend to appeal the Court’s decision and will file their notice of appeal on or before November 21, 2013.

CommonWealth REIT Shareholder Litigation

On February 28, 2013, Chimicles & Tikellis LLP initiated a shareholder derivative and class action in the U.S. District Court for the District of Massachusetts in Boston, Mass., before the Honorable Denise J. Casper with the caption Delaware County Employees Retirement Fund v. Barry M. Portnoy, et al., under Case No. 1:13-cv-10405 (“Civil Action”).  The Litigation was brought on behalf of Massachusetts-based CommonWealth REIT (“CWH”) and its shareholders against its co-founder Barry Portnoy and his son Adam Portnoy (“Portnoys”), and their wholly-owned entity Reit Management & Research, LLC (“RMR”), and certain other former and current officers and trustees of CWH (collectively, “Defendants”).

In its 65-page Complaint (which can be accessed below), Plaintiff alleges a long history of management abuse, self-dealing, and waste which resulted in various breaches of fiduciary duties owed by Defendants to CWH, including the transfer of CWH’s best properties to other REITs formed and controlled by RMR for the benefit of the Portnoys.  By diverting key assets, RMR and the Portnoys were able to borrow and raise more capital, acquire more properties and earn more management fees from the other REITs controlled by RMR.  The Board has long known of the persistent abuses of power and self-dealing by the Portnoys and RMR, which is CWH’s external manager.  However, instead of protecting CWH and its shareholders, the Board adopted a bylaw purporting to require that all shareholder grievances be arbitrated.  Plaintiff will ask for damages and seek to enjoin Defendants from any further self-dealing and mismanagement, including enjoining a recently-announced 27 million share Equity Offering and Tender Offer, as well as any attempt by Defendants to enforce the oppressive arbitration clause in CWH’s bylaws.

On March 1, 2013, Chimicles & Tikellis filed for a temporary restraining order (“TRO”) on behalf of CommonWealth REIT to stop its management from completing an Equity Offering and Tender Offer.  On March 4, 2013, the District Court for the District of Massachusetts denied Plaintiff’s TRO motion as well as a separate TRO motion filed by shareholders Related Fund Management, LLC and Corvex Management LP (“Corvex-Related”).

On March 13, 2013, Corvex-Related announced that they would solicit shareholders to act by written consent to effect the removal of the entire board of trustees of CWH.  On June 21, 2013, Corvex-Related announced that they secured the requisite number of shareholder consents needed to remove the entire CWH Board of Trustees.  However, the Board of Trustees refused to accept the results and initiated an arbitration proceeding before the American Arbitration Association seeking to invalidate the consent solicitation (the “Arbitration”).

Following a July 26, 2013 hearing before the three-member arbitration panel (the “Panel”), the Panel invalidated the CWH bylaw amendment that imposed an unreasonable three year holding period and 3% ownership restriction on shareholders seeking a record date for a consent solicitation.  Specifically, the arbitration panel held:

[W]hile some holding period and some minimum threshold ownership level either singularly or in combination can be set in the bylaws as a condition to a shareholder or shareholders obtaining a record date for a consent solicitation, the Trustees may not adopt either a minimum ownership threshold or a minimum holding period which operating either separately or together substantially impairs the right of shareholders to proceed with a consent solicitation by making the obtaining of a record date on a consent solicitation unreasonably difficult to achieve.  The Panel has determined that the 3 + 3 bylaws exceed this standard as a matter of law. . . .

Following a two-week long evidentiary hearing that commenced on October 7, 2013, the Panel issued an interim order on November 18, 2013, striking numerous bylaw provisions and holding that there is no question that Trustees erected a complex wall of procedural hurdles to any consent solicit and that shareholders were “frustrated by the Bylaw barriers.”  The Panel also provided a process for Corvex-Related to initiate a new consent solicitation seeking removal of the Board of Trustees.  Regular updates are provided on the Corvex-Related website at http://www.shareholdersforcommonwealth.com.

Read more on the Consent Solicitation.

With respect to the Civil Action, Defendants have asserted that shareholders must engage in a cost prohibitive arbitration before the American Arbitration Association pursuant to Section 16 of CWH’s Bylaws (the “Arbitration Bylaw”).  However, Plaintiffs contend that the Arbitration Bylaw is void as a matter of law for numerous reasons, including that the Bylaw is unreasonable under Maryland law and a product of self-dealing adopted by the Board in order to insulate themselves from any liability for their misconduct.  On November 20, 2013, the District Court for the District of Massachusetts held a hearing in the Civil Action on the validity of the arbitration clause and the parties await a ruling.

Empire State Realty Trust

In re Empire State Realty Trust, Inc. Investor Litigation

Beginning in March 2012, class actions were commenced in the Supreme Court of the State of New York, County of New York and were consolidated before Justice O. Peter Sherwood (the “Court”) with the caption In re Empire State Realty Trust, Inc. Investor Litigation, under Index No. 650607/2012.  The Litigation was brought on behalf of the investors in various private and public companies (“Class”), including the investors in Empire State Building Associates L.L.C., 60 East 42nd Street Associates L.L.C., and 250 West 57th Street Associates L.L.C. (the “Public LLCs”), who have been asked to approve the consolidation of their real estate entities, including the entities that own and operate the Empire State Building, into a publicly traded real estate investment trust to be known as Empire State Realty Trust, Inc. (the “Consolidation”).   The Litigation was brought against the transaction’s chief proponents, including the entities’ Supervisor (Malkin Holdings LLC), members of the Malkin family, certain affiliated companies, and the Estate of Leona Helmsley (“Defendants”).

On or about February 13, 2012, Defendants caused to be filed with the SEC a preliminary Form S-4 seeking the Public LLC investors’ consent to, among other things, the proposed Consolidation, conditioned on an offering of Empire REIT’s shares to the public (the “Underwritten Offering”) and the listing of Empire REIT’s shares on a national exchange expected to be the New York Stock Exchange (the “IPO”).  As part of the Consolidation and IPO as initially proposed, each participation interest in the Public LLCs would be exchanged for shares of Class A Common Stock of the REIT or a combination of cash plus shares of Class A Common Stock of the REIT in a ratio to be determined, without having the option to receive REIT Operating Partnership units (“OP Units”) and potentially Class B Common Stock instead of Class A Common Stock.  Those receiving OP Units could defer taxation on the exchange between Participation interests and OP Units. The Litigation alleged that the Consolidation, as then proposed, was unfair to the Class, violated Defendants’ fiduciary obligations owed to the Class, and that Defendants failed to provide the Class with material information about the Consolidation and IPO.  Defendants categorically deny the allegations.

Proposed SettlementAfter several months of discovery and intense negotiations, the parties reached a proposed Settlement of the Litigation on behalf of the Class. The Settlement will benefit the Class, subject to the consummation of the Consolidation, in several ways:

  • Settlement Fund. A settlement fund of $55 million will be established to pay monetary recoveries in accordance with a court-approved plan of allocation.
  • Tax Deferral. The Litigation was a material factor in a redesign of the transaction to permit investors to defer taxation. Defendants have estimated the value of this tax benefit at over one hundred million dollars ($100,000,000.00).
  • Disclosures. Extensive supplemental information was disclosed to investors about the Consolidation and IPO.  The additional disclosures or changes to disclosures relate to, among other things: the property appraisals, fairness opinions, valuation methodologies, including the 50/50 allocation, joint venture and discounted cash flow methodologies, and the derivation of exchange values used in connection with the proposed Consolidation; the Malkin family’s interests, including ownership interests in the Public and Private LLCs, override interests and interests in management and construction companies, and the valuation of those interests; the conflicts of interest between the members of the Class and Defendants; the Helmsley Estate’s impetus to sell its interests and the risks associated with sale alternatives to the proposed Consolidation; the exchange value allocated to Defendants; the definition and explanation of enterprise value;  the payment to the Class of excess cash held by the Public LLCs and additional distributions accrued prior to the closing and Consolidation; the transaction expenses of the Consolidation and their potential reimbursement; the projected distributions by the REIT as compared to historical distributions to Participants; the proposed centralized management structure and makeup of the REIT; and the assets being contributed to the REIT.
  • Protections in connection with the IPO and Underwritten Offering.  Defendants have agreed that:  (i) the IPO will be on the basis of a firm commitment underwriting; (ii) if, during the solicitation period, any of the three Public LLC’s percentage of total exchange value is lower than what is presented in the final Form S-4 by a factor of ten percent (10%) or more, such decrease will be promptly disclosed by Defendants to investors in any such Public LLC, who will have the option to change their vote; and (iii) unless total gross cash proceeds of six hundred million dollars ($600,000,000.00) is committed in the IPO, Defendants will not proceed with the IPO without first obtaining further approval from the Public LLCs.

Preliminary Approval.   On February 21, 2013, the Court granted preliminary approval of the proposed Settlement.

Notice. A Notice announcing the Proposed Settlement has been mailed to the Class. The Notice provides detailed information about the Settlement and the Plan of Allocation.  The Notice should be read in its entirety.

Change to Opt-Out Procedure.  Pages 15 and 17 of the Notice require that a Class member wishing to opt out must submit a Request for Exclusion to each of the plaintiffs’ and defendants’ law firms and the Clerk of the Court.  The Court has changed this requirement.  In order to opt out, a Class member need only submit his or her Request for Exclusion to (a) the Clerk of the Court, and (2) to Wolf Haldenstein Adler Freeman & Herz LLP, at the addresses set forth on page 17 of the Notice.

 

Final Approval. On May 2, 2013, the Court held the Final Approval Hearing to determine, among other things, whether to grant the proposed Settlement final approval. On May 17, 2013, the Court entered the Final Order and Judgment approving the Settlement as fair and reasonable, and filed decisions and orders in support of its approval of the Settlement and an award of attorneys’ fees and reimbursement of expenses. The orders can be accessed below.

Documents:

Additional Information:

If you need additional information about the Litigation and/or Settlement, please contact Kimberly Donaldson Smith, Esquire by e-mail at kmd@chimicles.com  or at 610-642-8500.

Freeport-McMoRan Copper & Gold, Inc. Derivative Litigation

On December 21, 2012, Chimicles & Tikellis LLP filed a derivative action complaint on behalf of Freeport-McMoRan Copper & Gold Inc. (“Freeport” or the “Company”), in the Court of Chancery of the State of Delaware (the “Action”). The Action alleges wrongdoing by the Freeport directors for causing the proposed acquisitions (the “Proposed Transactions”) by Freeport of McMoRan Exploration Co. (“MMR”) and Plains Exploration & Production Company (“PXP”) (which also owns 31.5% of MMR) at a grossly excessive price, to satisfy their own conflicted desires and subjecting Freeport to excessive risk.  The Action alleges that the Individual Defendants, the majority of whom sit on more than one of the Freeport, MMR and PXP boards of directors, are plagued by massive and irreconcilable self-interests and stand to benefit personally in connection with the Proposed Transactions at the expense of Freeport.

On December 5, 2012, it was announced that Freeport-McMoRan Copper & Gold Inc. (“Freeport”) announced it had signed definitive agreements to acquire Plains Exploration & Production Co. (“PXP”) for $6.9 billion in cash and stock and McMoRan Exploration Co. (“MMR”) for $3.4 billion in cash.  Under the terms of the agreements, Freeport-McMoRan will acquire MMR, including PXP’s 31.6% ownership in MMR, pursuant to which MMR shareholders will receive $14.75 in cash and 1.15 units of a royalty trust, which will hold a 5% overriding royalty interest in future production from MMR’s existing ultra-deep exploration properties, representing a 74% premium to its closing price before the deal was announced.  Prior to the announcement MMR was trading near its 52-week low, amidst its announcement that a test to determine the productive capacity of one of its wells proved inconclusive.

Freeport, MMR and PXP have numerous overlapping directors and executive officers, led by James R. Moffett, who is Chairman and former CEO of Freeport and is Co-Chairman, President and CEO of MMR, all of whom hold stock in MMR.  Many market observers speculate that cash-rich Freeport is bailing out MMR and, by extension, Moffet and others’ substantial interests in MMR.  Additionally, PXP and its insiders, two of which sit on the MMR Board, will be receiving substantial benefits, including Freeport stock and over $100 million in change in control benefits as well as the bailout of PXP’s significant interests in Freeport.  Despite the size and transformational nature of the proposed transactions, Freeport stockholders will not be permitted to vote on the proposed transactions.

The Action alleges that as interested parties in the Proposed Transactions, the Freeport Board is obligated to ensure that the Proposed Transactions are at a price that is entirely fair to Freeport and its stockholders and engage in a process that is also entirely fair.  The Action further alleges that the Freeport Board members acted disloyally and caused Freeport to dissipate valuable corporate assets by satisfying their conflicted interests and causing Freeport to acquire MMR and PXP at unfairly high prices, exposing Freeport to substantial increased risk.

On January 8, 2013, Chimicles & Tikellis LLP filed a Verified Amended Derivative Action Complaint to include information from the preliminary proxies issued in connection with the Proposed Transactions.

After the announcement of the Proposed Transactions, multiple actions were filed.  On January 25, 2013, the Court consolidated all of the actions and Chimicles & Tikellis LLP was appointed Co-Lead Counsel, its client Dauphin County was appointed Co-Lead Plaintiff, and the Verified Amended Derivative Action Complaint filed by Chimicles & Tikellis LLP was designated as the operative complaint.

Barnes & Noble, Inc.

Chimicles & Tikellis LLP has filed a shareholder lawsuit, derivatively on behalf of Barnes & Noble Inc. (“B&N” or the “Company”), in the Court of Chancery of the State of Delaware (the “Action”).  The Action alleges wrongdoing by the B&N directors for recklessly causing the Company to acquire Barnes & Noble College Booksellers, Inc. (“College Books”) (the “Transaction”) from B&N’s founder, Chairman and controlling stockholder, Leonard Riggio (“Riggio”) at a grossly excessive price, subjecting B&N to excessive risk.

On September 1, 2009, the Court appointed Chimicles & Tikellis LLP as Co-Lead Counsel in the Action.

On August 7, 2009, B&N agreed to acquire the privately-held College Books from Riggio, in a transaction valued at $596 million.  In the Acquisition, B&N received the “Barnes & Noble” trade name, which was owned by College Books and which B&N licensed from College Book and College Books’ brick and mortar operations.  The Transaction was completed on September 30, 2009.

The Action alleges that as a controlling stockholder of B&N, Riggio is obligated to sell College Books at a price entirely fair to B&N’s stockholders and engage in a process that is also entirely fair.  The Action further alleges that the B&N Board members acted disloyally and caused B&N to waste valuable corporate assets by allowing the B&N Chairman and 32.1% shareholder, Riggio, to force B&N to acquire his company, College Books, at an unfairly high price, exposing B&N to substantial increased risk.

A public version of the Co-Lead Plaintiffs Verified Consolidated Shareholder Derivative Complaint, which was filed under seal, is available below.

On October 21, 2010, ruling from the bench, the Court allowed most of Co-Lead Plaintiffs’ claims for breach of fiduciary duty to survive against Riggio and all but two of the remaining B&N directors.

On December 23, 2011, all Defendants except for Leonard Riggio, the Company’s founder, Chair and controlling shareholder, filed motions for summary judgment and supporting briefs.  On March 27, 2012, the Court heard oral argument on Defendants’ motions for summary judgment.  Ruling from the bench, the Court allowed Co-Lead Plaintiffs’ claims for breach of fiduciary duty to proceed to trial against Riggio and two of the remaining B&N directors.

On the eve of a trial scheduled to commence June 18, 2012, the parties reached an agreement to settle the case.  The settlement terms, which are subject to Court approval, include the reduction of the purchase price by $22,750,000 by reducing the principal balance of an outstanding junior seller note between the Company and Riggio and forgoing the payment of any interest that may otherwise have been payable thereafter for an additional savings to the Company of $6,256,250.  The settlement consideration totals $29 million.  To view the Notice of Pendency of Derivative Action, Proposed Settlement of Derivative Action, Settlement Hearing, and Right to Appear, click here. The settlement was approved by the Court on September 4, 2012.

AIMCO Partnerships Buyout Case — Shelter Properties II Limited Partnership, National Property Investors III, US Realty Partners Limited Partnership, Shelter Properties IV Limited Partnership, Fox Strategic Housing Income Partners.

A Settlement of the Action was reached in July 2011.  The Court has granted final approval of the Settlement. More information about the Settlement, including a copy of the Class Notice can be accessed here.

Chimicles & Tikellis LLP filed a proposed class action in Denver, Colorado on behalf of the unaffiliated limited partners of Shelter Properties II Limited Partnership, National Property Investors III, US Realty Partners Limited Partnership, Shelter Properties IV Limited Partnership, Fox Strategic Housing Income Partners (the “Five Partnerships”).  The action arose from the buyout in early 2011 (“Merger”) of the unaffiliated limited partnership interests (“Unit(s)”) in the Five Partnerships by Apartment Investment and Management Company (“AIMCO”) and its affiliates (“Defendants”).

Over time, Defendants had acquired a majority of the outstanding Units of the Five Partnerships and ownership of their general partners.  In September 2010, Defendants announced that they would cash out the Units held by the unaffiliated LPs, which would result in Defendants owning a 100% interest in each of the Five Partnerships.  The Class consists of the minority, unaffiliated limited partners of each of the Five Partnerships.

Because Defendants owned a majority of the Units, the Merger was proposed and consummated without the approval or ratification by the LPs.  On September 14 and October 12, 2010 Defendants filed papers with the SEC, including Form S-4s, which were thereafter amended and/or supplemented (“Prospectuses”) and disseminated them to the LPs, which announced the Merger and the calculation of the Merger consideration.  The merger consideration to be paid to the LPs in the Merger was calculated primarily by taking Defendants’ appraised value of the Properties, adding additional assets, and then deducting mortgage balances, advances from Defendants, and other liabilities.

In the Merger, Defendants offered the LPs the right to contractually seek appraisal rights (“Contractual Appraisal Right Option”).  The Contractual Appraisal Right Option provided that the Defendants would unilaterally select three arbitrators to sit on a panel and would conduct the arbitration in Denver, Colorado and that the arbitration panel was permitted to charge the LPs with the costs of the appraisal proceeding.

Also as part of the Merger, Defendants offered to pay the LPs an additional cash payment, only if the LPs agreed to execute a waiver and release of Defendants from a broad array of potential claims not only related to the Merger but to “any other circumstance,” or any matter related to their ownership of Units, and for claims which the LPs might possess, but did not know or suspect to exist (“Waiver & Release”).

The Merger was consummated on February 11, 2011.

The Action contends that Defendants breached, or aided and abetted breaches of, fiduciary duties owed to the LPs, for proposing and implementing the Merger which was unfair to the LPs with respect to the price they were paid by Defendants for their Units, and with respect to the process employed in doing the Merger. In the Action, the Plaintiffs sought monetary damages and alleged that, among other things, Defendants misled the Class and gave them inadequate consideration for their Units in the buyout.

The Plaintiffs and Defendants entered into a Stipulation of Settlement in July 2011, which provides that the LPs will receive an additional payment for the Merger.  The Notice of Pendency of Class Action Settlement, available here, which was sent to the LPs contains details concerning the Settlement and your rights.

If you have any questions about the Notice, your rights or the litigation, please contact Kimberly Donaldson Smith, 361 West Lancaster Avenue, Haverford, PA 19041, Phone: 610-642-8500, or by email at kimdonaldsonsmith@chimicles.com.

Mutual Fund Fraud Derivative Litigation

Chimicles & Tikellis LLP is one of three firms appointed Lead Fund Derivative Counsel in the In re Mutual Funds Investment Litigation, MDL 1586, pending in the United States District Court for the District of Maryland before Judge J. Frederick Motz, Judge Catherine C. Blake, and Judge Andre Davis. The coordinated actions allege claims based on the “market timing” and “late trading” scandal which broke in late September 2003 and caused shock waves throughout the $10 trillion mutual fund industry. The MDL involves sixteen mutual fund families and hundreds of parties.

Following a hearing on May 3, 2004, the United States District Court for the District of Maryland appointed Chimicles & Tikellis as Lead Fund Derivative Counsel for Fund Derivative claims in the Janus, Pilgrim Baxter, One Group, Franklin Templeton, Excelsior, and Strong fund families. Chimicles & Tikellis also works closely with Lead Fund Derivative Counsel in the other ten fund families involved in MDL 1586.

On August 25, 2005, the Court upheld Fund Derivative Plaintiffs’ claims under Section 36(b) of the Investment Company Act in the Janus subtrack and that holding was subsequently adopted in the other fund families in MDL 1586. Chimicles is currently prosecuting those claims under Section 36(b) in the subtrack for which it is Lead Fund Derivative Counsel.

 

AIMCO Partnerships Buyout Case — Consolidated Capital Institutional Properties, LP

The Proposed Settlement of the Action Has Been Preliminarily Approved:

A Settlement of the Action was reached in July 2011. At the February 10, 2012 Final Approval Hearing, the Arbitrator approved the Settlement. More information about the Settlement, including the Final Judgment,  Notice, Plaintiffs’ Motion for Final Approval of the Settlement and Attorneys’ Fees and the Supporting Attorney Declaration, can be accessed below.

Chimicles & Tikellis LLP filed a class action arbitration with the American Arbitration Association on behalf of the unaffiliated limited partners of Consolidated Capital Institutional Properties, LP. (“CCIP”).  The action arose from the buyout in early 2011 (“Merger”) of the unaffiliated limited partnership interests (“Unit(s)”) in CCIP by Apartment Investment and Management Company (“AIMCO”) and its affiliates (“Defendants”).   In the Merger, Defendants paid the unaffiliated limited partners (“LPs”) approximately $4.31 per Unit.

Over time, Defendants had acquired a majority (approximately 75%) of the outstanding Units of CCIP and ownership of CCIP’s general partners.  In September 2010, Defendants announced that they would cash out the Units held by the limited partners in CCIP, which would result in Defendants owning a 100% interest in CCIP.  The Class consists of the minority, unaffiliated limited partners of CCIP who owned approximately 25% of CCIP’s Units.   AIMCO and its affiliates were fiduciaries of CCIP and the Class.

Because Defendants owned a majority of the Units, the Merger was proposed and consummated without the approval or ratification by the LPs.  On September 14 and October 12, 2010 Defendants filed papers with the SEC, including Form S-4s, which were thereafter amended and/or supplemented (“Prospectuses”) and disseminated them to the LPs, which announced the Merger and the calculation of the Merger consideration.  The merger consideration to be paid to the LPs in the Merger was calculated primarily by taking Defendants’ appraised value of the Properties, adding additional assets, and then deducting mortgage balances, advances from Defendants, and other liabilities.  The total Merger Consideration to the LPs for their interest in CCIP was $200,000 or $4.31 per Unit (or the equivalent value in Aimco OP Units).

In the Merger, Defendants offered the LPs the right to contractually seek appraisal rights (“Contractual Appraisal Right Option”).  The Contractual Appraisal Right Option provided that the Defendants would unilaterally select three arbitrators to sit on a panel and would conduct the arbitration in Denver, Colorado and that the arbitration panel was permitted to charge the LPs with the costs of the appraisal proceeding.

Also as part of the Merger, Defendants offered to pay the LPs an additional cash payment, only if the LPs agreed to execute a waiver and release of Defendants from a broad array of potential claims not only related to the Merger but to “any other circumstance,” or any matter related to their ownership of Units, and for claims which the LPs might possess, but did not know or suspect to exist (“Waiver & Release”).  If the LPs elected to execute the Waiver & Release, they would receive an additional $2.16 per Unit.

The Merger was consummated on February 11, 2011.

The Action contends that Defendants breached, or aided and abetted breaches of, fiduciary duties owed to the LPs, for proposing and implementing the Merger which was unfair to the LPs with respect to the price they were paid by Defendants for their CCIP Units, and with respect to the process employed in doing the Merger. In the Action, the Plaintiffs sought monetary damages and alleged that, among other things, Defendants misled the Class and gave them inadequate consideration for their Units in the buyout.

The Plaintiffs and Defendants entered into a Stipulation of Settlement in July 2011, which provides that the LPs will receive an additional payment of approximately $74 per Unit.  The Arbitrator preliminarily approved the Settlement in November 2011 and on December 10, 2011, the Notice of Pendency of Class Action Settlement was sent to the LPs.  The Notice is attached below.

If you have any questions about the Notice, your rights or the litigation, please contact Kimberly Donaldson Smith, 361 West Lancaster Avenue, Haverford, PA 19041, Phone: 610-642-8500, or by email at kimdonaldsonsmith@chimicles.com.