Empire State Building Investor Appeals $55M Settlement
By Kaitlin Ugolik
Law360, New York (March 19, 2014, 3:32 PM ET) -- An Empire State Building investor on Tuesday appealed the May approval of a class action settlement over a deal that rolled the iconic building into a real estate investment trust, arguing that the class did not properly represent — and the settlement did not benefit — all investors.
Alan L. Kovacs, a trustee of the Hilda Kovacs Family Trust, which holds an interest in the building through Empire State Building Associates, argues that the ESBA investors should have been represented as a separate class or sub-class in litigation over the creation of the Empire State Realty Trust.
Instead, the class in the present action included all investors in ESBA as well as those in two other public LLCs and all of the private entities that Malkin Holdings LLC aimed to consolidate with the REIT deal, allegedly resulting in an unfavorable outcome for ESBA investors.
“There are questions of law and fact that are unique to the investors in ESBA that predominate over questions of law and fact that are common to investors in the other private and public entities involved in the consolidation in the ESRT,” Kovacs argued.
Judge O. Peter Sherwood certified a class of 4,500 investors in May and approved a $55 million settlement, clearing the way for the creation of ESRT and a subsequent initial public offering.
The investors had claimed that they'd been misled about the deal, which they feared would saddle them with heavy taxes and other burdens, but the majority of them dropped their objections in exchange for $55 million in cash and securities, as well as changes to the deal's tax structure worth an estimated $100 million.
Not all of the investors were happy with the settlement, however.
Kovacs argued that the lower court had erred in certifying the class, erroneously finding that the questions of law and facts common to the class predominated over any questions affecting only individual class members.
“Furthermore, the conduct of plaintiff-respondents and class counsel evidences that they clearly cannot protect, and have not protected, the interests of investors in ESBA whose interests conflict with the interests of the other members of the certified class,” the petition said.
The lower court found that the $55 million settlement represented between 34 percent and 76 percent of the total recoverable damages, but each owner of a $10,000 ESBA participation ended up receiving about one third less than they and the court had anticipated, Kovacs claimed.
“Perhaps most tellingly, like those ESBA participants who voluntarily consented to the consolidation, class counsel were duped by defendant-respondents into believing that most ESBA participants would be receiving $328,800,” the petition said.
The court also determined that $11.6 million in attorneys' fees was appropriate based on an average hourly rate of $2,475.56, but the investor argues that the hourly rate should have been lowered based on the counsel allegedly having improperly discounted the value of certain claims and misrepresented that they were responsible for the tax benefit to the class.
Counsel for the parties did not immediately respond to requests for comment Wednesday.
Kovacs is representing himself.
The class is represented by Lawrence P. Kolker of Wolf Haldenstein Adler Freeman & Herz LLP.
The Malkin defendants are represented by Thomas E.L. Dewey of Dewey Pegno & Kramarsky LLP. The Helmsley estate is represented by Ronald S. Rolfe of Cravath Swaine & Moore LLP.
The case is In re: Empires State Realty Trust Inc. Investor Litigation, case number 650607/2012, in the Supreme Court of the State of New York, Appellate Division: First Department.
– Additional reporting by Eric Hornbeck. Editing by Emily Kokoll.