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Weil Secures Decisive Appellate Victory for Lehman in Investor Dispute Over $16 Billion Deal

On March 22, 2016, Weil won a significant appellate victory for Lehman Brothers Holdings Inc. in a suit brought by a minority investor objecting to the $16 billion sale by Lehman of apartment owner Archstone Enterprise LP to Equity Residential and AvalonBay Communities in 2012. In its Decision and Order, the New York Supreme Court, Appellate Division, First Department reversed the trial court’s denial of defendants’ motion to dismiss in its entirety, and directed the Clerk of the Court to enter judgment dismissing the complaint.

Plaintiff filed its complaint in January 2013, shortly after Lehman announced the sale of Archstone, claiming that the sale process and price were “grossly unfair” to plaintiff, which had invested in an Archstone limited partnership in October 2007, right before the beginning of the financial crisis. Plaintiff asserted a number of causes of action, including breach of the limited partnership agreement, breach of the implied covenant of good faith and fair dealing, breach of fiduciary duty, aiding and abetting breach of fiduciary duty, fraud and conversion.

In October 2014, the trial court issued an order granting in part and denying in part defendants’ motion to dismiss, permitting plaintiff to commence discovery on the surviving claims, including a portion of plaintiff’s claim for breach of fiduciary duty by the general partner of the limited partnership in which plaintiff invested. Under that claim, plaintiff asserted that Lehman failed both to run a fair sale process and to obtain a fair price for Archstone. Defendants filed an interlocutory appeal to the First Department.

In significant part, the First Department held in its decision and order that “[e]ven under the heightened entire fairness standard advocated by plaintiff, the claim is insufficient.” Notably, the First Department found that plaintiff failed to show that the partnership’s general partner did not engage in a reasonable alternative analysis to ensure the protection of the partnership’s assets, and that plaintiff itself conceded that “the $16 billion transaction price attained Archstone’s current value at the time of the transaction.”

The decision is unique in that the First Department chose to throw out the suit mid-case, while the parties were actively engaged in discovery. The decision also should provide comfort to fiduciaries (including boards of directors and general partners of limited partnerships) that they can act on a deal that is before them, without being second guessed by a disgruntled party that the deal wasn’t good for them and that a better deal “might have become available in the future.”

Litigation Department co-head Jonathan D. Polkes led the Weil team, which included partner Stephen A. Radin, counsel Ashish D. Gandhi, and associate Adam J. Bookman.

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