Investors Want $600M Empire State Building Suit Revived
By Stewart Bishop
Law360, New York (October 28, 2015, 7:48 PM ET) -- Investors in the Empire State Building on Wednesday urged a New York appeals court to revive their $600 million class action alleging that the iconic building's managers cheated them by rolling up the building into a real estate investment trust while ignoring better deals, saying their claims are distinct from prior actions.
An attorney for the investors argued before a four-judge panel of the New York Supreme Court Appellate Division, First Department, in Manhattan, saying that the case is based on facts and matters that were not at issue in class action litigation that culminated in a $55 million settlement approved in May 2013.
That deal allowed Malkin Holdings LLC to proceed with plans to convert its ownership stake and the participation interests that investors bought in Empire State Building Associates LLC in the 1960s into a publicly traded a real estate investment trust including the iconic 102-story skyscraper and a dozen other Malkin properties.
The plaintiffs in the settled suits had claimed that Malkin acted in a self-serving manner in deciding to move forward with the REIT and initial public offering when a sale of the Empire State Building by itself would have brought the ESBA investors a better return.
The REIT's IPO took place in October 2013, after the settlement and an investor vote approving the move, raising $929.5 million in its debut. But certain investors again sued, saying that Malkin improperly ignored several $2 billion offers for the Empire State Building in order to save its IPO and REIT deal, which allegedly made them millions while hanging investors out to dry.
John J. Rizio-Hamilton of Bernstein Litowitz Berger & Grossmann LLP, an attorney for the investors, told the panel that a lower court’s finding that the prior settlement barred their claims should be reversed, since the new suit is based on facts that did not even exist when that action was resolved, namely, that a series of all-cash offers for the Empire State Building was made after the settlement was consummated.
“Our claims are predicated on the breach of fiduciary duty that the defendants engaged in by failing to consider in good faith these particular offers that were made between June and September 2013,” Rizio-Hamilton said.
Malkin’s attorney Thomas E.L. Dewey of Dewey Pegno & Kramarsky LLP argued that the May 2013 settlement agreement, approved by more than 90 percent of investors, contained a covenant not to sue, and said that the instant suit is no different from the prior class action.
“He’s got the facts wrong; the fact of the matter is there were past offers for the Empire State Building,” Dewey said. “In the disclosure that went out to investors ... we went on at length about alternatives to the transaction, including a long discussion about the fact that we could sell the Empire State Building in a stand-alone sale.”
Dewey added that allowing the instant case to proceed would set a dangerous precedent in similar class action litigation.
“If their theory of the case is right, if any new offer could lead to a new class action, you could never settle one of these claims,” Dewey said.
The panel reserved decision on the appeal.
The plaintiffs are represented by Stephen B. Meister, James M. Ringer and Remy J. Stocks of Meister Seelig & Fein LLP, Mark Lebovitch, John J. Rizio-Hamilton and Katherine Stefanou of Bernstein Litowitz Berger & Grossmann LLP, Jeffrey C. Block, Jason M. Leviton and Joel Fleming ofBlock & Leviton LLP, and Lee Rudy, Michael Wagner and Tamara Gavrilova of Kessler Topaz Meltzer & Check LLP.
Malkin is represented by Thomas E.L. Dewey and David S. Pegno of Dewey Pegno & Kramarsky LLP.
The case is In re: Empire State Building Associates LLC Participants Litigation, case number 654456/2013, in the Supreme Court of the State of New York, County of New York.