CommonWealth REIT (CWH) said a state court in Maryland denied a bid by investors Corvex Management LP and Related Cos. to halt the arbitration of a governance dispute with the real-estate company.
Corvex and Related “failed to provide sufficient facts” to justify a halt to arbitration, according to a copy of an order by Judge Audrey J.S. Carrion in Baltimore that was filed by CommonWealth today with the U.S. Securities and Exchange Commission.
Keith Meister’s Corvex and Related, led by Chief Executive Officer Jeff Blau, are trying to oust CommonWealth’s board and have said they were prepared to buy the Newton, Massachusetts-based company, which they claim is undervalued because of a “misalignment of incentives” between the REIT and its external management.
The investors sued in state court in Maryland last week to void amendments to CommonWealth’s bylaws that make it harder for investors to replace board members, after failing to stop an equity offering in federal court in Boston this month.
Lawyers for the plaintiffs told Carrion yesterday that they didn’t want to be forced into arbitration, a process that she may yet rule inappropriate. The Corvex and Related suit includes a request to invalidate arbitration provisions of the CommonWealth bylaws. Carrion hasn’t yet ruled on those.
Joanna Rose, a spokeswoman for the investors, said today in an e-mailed statement that they are “confident” the court will find the arbitration bylaws unenforceable.
Related and Meister accused CommonWealth in their complaint of breaching its fiduciary duty by “self-interested conduct that has sacrificed and continues to sacrifice CommonWealth shareholder value” for the benefit of the company’s trustees and external manager, Reit Management & Research LLC.
CommonWealth’s five-member board of trustees includes President Adam Portnoy and his father, Barry Portnoy, a company founder. They also own Reit Management & Research.
The Maryland complaint accuses the Portnoys and other trustees of making deals that favor the REIT’s management company at the expense of shareholders.
Corvex faced a deadline March 18 to appoint an arbitrator to represent its interests, Adam Offenhartz, an attorney for the plaintiffs, said at a hearing yesterday.
That arbitrator and one appointed by CommonWealth would have 15 days to pick a third person for a tribunal that would consider issues raised by Corvex and Related in its suit, according to Offenhartz.
CommonWealth’s offering of 34.5 million shares was completed March 5. Corvex and Related filed documents with the SEC on March 13 asking shareholders to consent to the removal of CommonWealth REIT’s board.
Corvex and Related own a stake of about 8.6 percent of CommonWealth, according to a March 13 regulatory filing. The companies owned 9.8 percent of the outstanding shares prior to the equity offering.
The case is Corvex v. CommonWealth REIT, 24C13001111, Circuit Court of Maryland, Baltimore City.
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