Empire State Building Investors Rip Owners Over Discovery
By Kaitlin Ugolik
Law360, New York (April 07, 2014, 1:53 PM ET) -- A class of investors in the Empire State Building told a New York state judge Friday that the operators of the real estate investment trust that holds the iconic building have violated court rules with their alleged refusal to provide discovery documents while a motion to dismiss is pending.
In connection with their response to the defendants' motion to dismiss the suit challenging the Empire State Building's roll-up into a REIT and subsequent initial public offering, an attorney for the plaintiffs also issued a letter to the judge calling attention to the discovery dispute.
The parties met on March 11 to discuss the defendants' objections to the plaintiffs' document requests, and the defendants allegedly refused to produce anything unless and until their motion to dismiss is denied by the judge.
“Defendants' assertion is directly contrary to the rules of this court, which make clear that discovery is not stayed while a motion to dismiss is pending,” Mark Lebovitch, an attorney for the plaintiffs, said Friday in a letter to Judge O. Peter Sherwood. “Defendants' position also ignores the practical reality that the parties can productively use this time while the motion to dismiss is pending to engage in targeted discovery.”
Lebovitch said the plaintiffs offered to limit document discovery while the defendants' motion is pending, minimizing their request to documents related to the offers made for the Empire State Building and Empire State Building Associates LLC between June 18 and Sept. 9, 2013.
But the defendants allegedly rejected this offer, and the plaintiffs asked the judge to address the issue at an April 9 hearing.
The defendants filed a motion to dismiss the action on March 7, emphasizing that the deal — which the plaintiffs claimed did not yield an adequate price — was approved by supermajorities of nearly all of the 5,000 small groups of investors, and that in the end all investors consented to the deal and no one accepted a buyout.
They also pointed to a $55 million settlement they reached with another group of plaintiffs before Empire State Realty Trust went public, and the fact that the plaintiffs in the current suit already tried and failed to block that settlement.
“Now, however, the same parties attempt an end-run around the very settlement they unsuccessfully opposed and file yet another class action, with their sole target the Empire State Building. They ignore the massive investor support of the transaction and the inability to pursue any alleged alternative, each of which was manifestly inadequate,” the defendants said.
The defendants claimed that the action was barred by the previous settlement agreement, that they had already been released from the claims being pursued by the plaintiffs in the present action, and that their decision to move forward with the controversial deal was protected by the business judgment rule.
In their Friday memorandum of law in opposition, the plaintiffs challenged these claims and criticized the defendants' decision to “advance a series of technical (and incorrect) arguments seeking dismissal,” rather than directly addressing all of the plaintiffs' claims.
The plaintiffs also argued that the defendants' argument that they have already been released from current plaintiffs' claims is incorrect, since that the present claims arise from alleged wrongdoing that took place almost a year after the release.
“Since the facts at the core of this case — i.e. the Malkins' bad faith rejection of premium offers between June and September 2013 — were not even in existence at the time the court approved the prior release, this action clearly is not based on the 'identical' factual predicate as the settled case,” the plaintiffs said.
They asked the judge to schedule a trial as soon as possible.
Representatives for the parties did not immediately respond to requests for comment Monday.
The plaintiffs are represented by Mark Lebovitch and Katherine Stefanou of Bernstein Litowitz Berger & Grossman LLP, Stephen B. Meister, James M. Ringer and Remy J. Stocks ofMeister Seelig & Fein LLP and Lee Rudy, Michael Wagner and Tamara Gavrilova of Kessler Topaz Meltzer & Check LLP.
The defendants are represented by Thomas E. L. Dewey and David S. Pegno of Dewey Pegno & Kramarsky LLP.
Case information was not immediately available.
--Editing by Andrew Park.