Activist investor Keith Meister and Related Cos. asked a Maryland state judge to block arbitration proceedings begun by Commonwealth REIT (CWH) shortly after the two investor groups sued the real estate firm Feb. 27.
Meister, working through his Corvex Management LP, and Related prefer to have a court decide their dispute with CommonWealth and don’t want to be forced into arbitration, a process that a judge may yet rule inappropriate, their lawyers said today at a state court hearing in Baltimore.
Corvex and Related face a deadline today for naming a representative to the arbitration process under bylaws amended by CommonWealth in 2009, said Adam Offenhartz, an attorney for the plaintiffs.
“Once you select an arbitrator, you are part of the process,” Offenhartz said. “You’re in.”
Corvex and Related are also challenging the enforceability of arbitration in their dispute with CommonWealth in the Maryland litigation.
The plaintiffs don’t want “the events on the arbitration track to get out ahead of us,” Offenhartz told Judge Audrey J.S. Carrion.
Carrion said she would issue a ruling today on whether to halt arbitration proceedings, according to John Morkan, another attorney for Corvex and Related.
A ruling wasn’t available from the court clerk’s office before the close of business today.
Robert Saunders, an attorney for CommonWealth, told Carrion there’s no need to hold up arbitration proceedings.
“There’s absolutely no irreparable harm from the mere appointment of an arbitrator,” Saunders said.
Corvex and Related filed the suit after CommonWealth rejected objections to a planned offering of new shares. In their complaint, they accuse CommonWealth of breaching its fiduciary duty.
The offering of 34.5 million shares was completed last week. Corvex and Related filed documents with the U.S. Securities and Exchange Commission on March 13 asking shareholders to consent to the removal of the CommonWealth REIT’s board.
Corvex and Related amended their complaint on March 15, asking the court to void the real estate investment trust’s bylaw amendments that make it harder for shareholders to replace board members.
CommonWealth, based in Newton, Massachusetts, changed its bylaws on March 1. A shareholder or group of investors must own 3 percent of the company for at least three years before taking action to remove a trustee, according to a regulatory filing.
Before March 1, no more than two shareholders had a reported holding that met that requirement, Corvex and Related said in the amended complaint.
The amendments are a “clear contravention” of CommonWealth’s charter, according to a March 15 statement by Corvex and Related, which is headed by Chief Executive Officer Jeff Blau.
The revised complaint challenges portions of CommonWealth bylaws adopted in 2009 and in 2013.
“We continue to dispute their various allegations,” Tim Bonang, a spokesman for CommonWealth, said March 15 in a phone interview.
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 LLC, the external management company for the REIT.
Reit Management is to blame for much of CommonWealth’s conduct, Corvex and Related said in the amended complaint. The trust has implemented a strategy of purchasing properties at a high valuation to maximize the management company’s fees and has participated in multiple party-related asset transactions to develop new business platforms and income streams for Reit Management, according to the complaint.
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.
CommonWealth’s alleged breaches of fiduciary duty include “failing to consider a shareholder offer to buy out all CommonWealth stock for $27 per share and instead pricing and closing the dilutive equity offering at a mere $19 per share,” according to the amended complaint.
The case is Corvex v. CommonWealth REIT, 24C13001111, Circuit Court of Maryland, Baltimore City.
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