Delaware County Employees Retirement Fund v. Barry M. Portnoy, et al.
On February 28, 2013, Chimicles & Tikellis LLP initiated a shareholder derivative 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. The Litigation was brought on behalf of Massachusetts-based CommonWealth REIT (“CWH”) 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. Plaintiff will proceed with its claims against Defendants, which claims are set forth in the filed Complaint.
On March 13, 2013, Corvex Management LP and Related Fund Management, LLC, announced that they will be soliciting shareholders to act by written consent to effect the removal of the entire board of trustees of CommonWealth REIT. If these shareholders secure the consent of a 2/3 majority and remove the current board of trustees, CommonWealth REIT is required under its existing charter to call a special meeting of shareholders to elect successor trustees.
Corvex and Related have commenced their consent solicitation to remove the CWH Board of Trustees. Information about their business plan for CWH and the consent solicitation are available on the following website, http://www.shareholdersforcommonwealth.com.
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