January 30, 2019
A recent Law 360 story by Reenat Sinay, “REIT Fights Investor’s Attys’ Fee Bid Merger Suit,” reports that Select Income Real Estate Investment Trust hit back at an investor’s request for “an exorbitant $350,000” in attorneys’ fees in his putative class action over a proposed merger with Government Properties REIT, arguing in New York federal court that the shareholder’s counsel is not entitled to a fee award under federal law. Select Income said Monteverde & Associates PC, which is representing lead plaintiff Jesse Chen, cannot collect attorneys’ fees because the Private Securities Litigation Reform Act (PSLRA) bars awards in cases where the class did not receive damages or a monetary settlement, such as this one.
Chen had alleged that Select Income violated federal securities laws by not disclosing “certain immaterial minutiae” in filings related to the proposed deal. Chen’s suit was followed by a host of copycat lawsuits in which other minor shareholders accused Select Income of failing to disclose “superfluous details” surrounding the transaction, the trust said. Select Income reached an agreement with the other plaintiffs and released supplemental information in December about its now-completed merger with Government Properties “solely to avoid any further nuisance, distraction and expense,” it said. After those additional disclosures, Chen withdrew his motions for preliminary injunction and expedited discovery, according to the opposition.
“Crediting this litigation conduct would encourage meritless nuisance litigation and contravene the express goals of the PSLRA,” Select Income said. “As a threshold matter, plaintiff’s fee petition should be denied outright pursuant to the PSLRA because plaintiff has conferred no monetary benefit on the putative class.” Chen filed suit on Nov. 9, ahead of a planned Dec. 20 shareholder vote on the merger. He alleged that the company’s October proxy statement was misleading because it lacked details about Select Income’s financial projections, the valuation analyses performed by UBS Securities LLC and any potential conflicts of interest faced by UBS, among other information.
The trust responded by accusing Chen of merely following a recent trend of investor suits over company mergers and of presenting no real allegations of unfairness, false statements or breach of fiduciary duties on the part of its board of trustees. Select Income also accused Monteverde of developing a pattern of filing award-seeking “strike suits” in federal court after a recent wave of criticism of such suits in various state courts.
It opposed the “extravagant” fee requested by Chen on behalf of Monteverde, arguing that the calculation does not make sense and is not warranted by the settlement result. “Plaintiff’s fee demand is based on a 3.16 lodestar multiplier, which implies an average hourly rate of $1,683.50,” the trust said. “This should be a nonstarter. The boilerplate nature of plaintiff’s disclosure claims and the lack of any appreciable contingency risk in this case justify, at most, a nominal fee award.”
Select Income also contended that the terms of the settlement with the other plaintiffs, in which extra merger details were divulged in return for dismissal of all claims, provided very little actual benefit to those shareholders and therefore would not justify such a large fee award. “Even if the PSLRA did not bar the fee petition (and it does), plaintiff has failed to establish that he pled a meritorious claim or that the supplemental disclosures provided a substantial benefit to SIR’s former shareholders, as required for an award of fees under the pre-PSLRA case law on which plaintiff extensively relies,” the trust said.
The case is Chen v. Select Income REIT et al., case number 1:18-cv-10418, in the U.S. District Court for the Southern District of New York.