New York (January 29, 2013, 2:38 PM ET) -- A group of investors in the company that owns the Empire State Building sought Monday to intervene in a putative class action over the owner's plans to take its assets public, saying the $55 million settlement reached in November is “grossly inadequate and unfairly apportioned.”
Several investors in Empire State Building Associates, who originally bought public securities issued for the purpose of owning the iconic building in the 1960s, argue that the court should deny a recent request to certify the existing class and that ESBA participants should be admitted as a subclass.
The ESBA participants claim they would be uniquely harmed by the proposed roll-up of Malkin Holdings LLC's properties and the associated $1 billion initial public offering because, as part of their original investment agreement in the Empire State Building, they obtained an explicit ban on such a conversion of the property without their consent.
“The proposed settlement — just $55 million — amounts to barely 1 percent of the value of the roll-up, and is a tiny fraction of what the Malkin defendants are stealing from the ESBA investors,” the ESBA participants said in their memorandum in opposition to the class' recent motion for certification. “To add insult to injury, while the Helmsley estate — the majority owner of the operating lessee of the ESB — is paying a portion of the settlement, it is unclear how much if anything the Malkin defendants are paying.”
Malkin Holdings announced in February that it planned to allow the public to invest in 12 office buildings in New York and Connecticut, including the 102-story Empire State Building, through shares offered by a new publicly listed REIT to be known as Empire State Realty Trust Inc.
Many investors promptly objected, with at least five separate lawsuits filed in March, including the group of investors who filed the present class action, claiming Malkin Holdings breached its fiduciary duty by agreeing to a transaction that could deprive the investors of millions of dollars.
After months of negotiations and a change to the proposed IPO's tax terms, Malkin Holdings and the estate of Leona M. Helmsley agreed in November to pay the class $55 million to settle their claims.
But the ESBA investors say they are not adequately represented by the class, which is made up primarily of investors in the other properties that would be rolled up to create the REIT.
They are allegedly being forced to trade their low-risk, bond-like securities for high-risk equity securities, losing their iconic brand and the corporate opportunity to buy the Helmsley estate's interest, all on top of years of alleged self-dealing and other fiduciary abuses at the hands of Malkin Holdings, according to the memo.
In addition, the settlement — of which they would only get a small amount — has been disingenuously described as being worth much more than $55 million thanks to the deal's organization as a tax-deferred exchange, according to the ESBA participants.
They also allege that Malkin Holdings has threatened to buy out any investor who opposes the deal at a substantially discounted price, and claim that the company has improperly allocated the value of the Empire State Building roughly 50/50 between ESBA and a joint venture known as the Empire State Building Co., which holds a net sublease at the building — an issue that will only affect the ESBA investors, they argue.
“Their position is very simple: they need to be their own class because they have [endured] special wrongs,” Stephen B. Meister, an attorney for the ESBA investors, told Law360 on Tuesday.
Counsel for the Helmsley estate declined to comment Tuesday, while counsel for the Malkin defendants did not immediately respond to requests for comment.
The ESBA investors are represented by Stephen B. Meister, Thomas L. Friedman and Remy J. Stocks of Meister Seelig & Fein LLP.
The proposed class of investors is represented by Lawrence P. Kolker, Gregory M. Nespole and Lydia A. Keaney of Wolf Haldenstein Adler Freeman & Herz LLP.
The Malkin defendants are represented by Thomas E.L. Dewey and David S. Pegno of Dewey Pegno & Kramarsky LLP. The Helmsley estate is represented by Ronald S. Rolfe and Greg C. Cheyne of Cravath Swaine & Moore LLP.
The action is Leon Meyers et al. v. Empire State Realty Trust Inc. et al., case number 650607/2012, in the Supreme Court of the State of New York, County of New York.
--Editing by John Quinn.