Nov. 22 (Bloomberg) -- Opponents of taking New York City’s Empire State Building public asked an appeals court to declare illegal a provision that could have seen some holders of ownership units paid $100 a unit if they refused to go along with a planned initial public offering.
Steven Meister, an attorney representing dissenting unit holders who opposed including the building in a real estate investment trust, asked the state Supreme Court’s Appellate Division in Manhattan to reverse Justice O. Peter Sherwood’s ruling in April denying a request to declare the buyout provision unlawful under state corporation law.
Meister argued that the provision coerced dissidents into voting in favor of the plan because they faced $100 buyouts on ownership units that were worth hundreds of thousands of dollars. Upholding Sherwood’s ruling would “effectively eviscerate” the rights of the dissenters, he said.
“People were bludgeoned into changing their vote from dissenters to assenters,” Meister told the court to applause from opponents of the offering who filled the courtroom, many wearing blue buttons with a picture of Empire State Building crossed out by a red line with the words “Illegal Vote” superimposed.
Empire State Realty Trust Inc., whose properties include the Empire State Building, sold 71.5 million shares for $13 each on Oct. 1.
The sale culminated an almost two-year quest by the Empire State Building’s supervisors, Peter Malkin and his son Anthony, to take the iconic skyscraper and 20 other New York-area properties public, a process marked by battles with some of the tower’s longtime investors.
Of about 2,800 Empire State Building legacy unit holders, a minority challenged the REIT proposal, preferring to keep a steady income stream and the bragging rights that come with owning a piece of such an landmark property.
Sherwood in May approved a $55 million settlement of lawsuits over the plan to take the trust public, allowing it to move forward. He had earlier rejected a request by investors opposed to the settlement to intervene in the case, and denied a bid to declare the $100-a-share buyout provision illegal.
The dissidents had argued that the buyout provision deprived them of their right to get fair value for their assets as members of Empire State Building Associates and therefore violated the state’s limited liability law. Malkin Holdings LLC, supervisor of the building, claimed they weren’t members and weren’t entitled to those rights. Sherwood agreed with the Malkins, and declined to declare the buyout provision illegal.
The Malkins, who needed 80 percent approval from unit holders to move forward with the IPO, said they would leave voting open until Sherwood ruled on the buyout or held a final hearing on the settlement. They said they gained the necessary approvals in May.
Thomas E.L. Dewey, an attorney representing the Malkins, asked the court yesterday to affirm Sherwood’s ruling or dismiss Meister’s appeal, saying that not every holder of a membership interest in Empire State Building Associates is a member.
“The IPO has occurred, the stock price is up,” Dewey said. “There’s no reason to go back and revisit this issue. This was not some sort of freeze out transaction. All the investors were treated equally.”
The dissidents say a conversion to a REIT would mean giving up a reliable income stream that should rise as renovations at the skyscraper are finished. The Malkins have said their plan gives unit-holders liquidity, regular dividends and greater growth opportunities.
The case is Meyers v. Empire State Realty Trust Inc., 650607/2012, New York State Supreme Court, New York County (Manhattan).
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