Wells Real Estate Investment Trust, Inc. ("Wells REIT" or the Company), a real estate investment trust whose stock is not traded on a national stock exchange, is primarily engaged in the acquisition and ownership of commercial real estate properties such as office or industrial buildings.
The securities class action was commenced against Wells REIT and certain of its affiliates, officers and directors. The Complaint was filed on behalf of a proposed class ("Class") of the Company's stockholders who are entitled to vote on Wells REIT's proxy statement that was filed with the SEC on February 26, 2007 ("Proxy"). The Complaint also includes derivative claims asserting wrongdoing on behalf of Wells REIT against certain Defendants.
The Complaint, which seeks damages and other appropriate relief for the Class and the Company, charges Defendants with violations of the federal securities laws, including Sections 14(a) and 20 of the Securities Exchange Act of 1934 and Rule 14a-9 promulgated thereunder. The Proxy seeks shareholder approval to merge affiliates of the Company (the "Advisor") into Wells REIT for $175 million worth of the Company's stock ("Internalization"). The Advisor is wholly owned by officers and directors of Wells REIT and thus the Internalization is a self-dealing transaction that must receive the utmost scrutiny by the Class and the Company. The Complaint charges that the Internalization does not stand up to that scrutiny. Among other things, the Complaint alleges that the Proxy is false, misleading and omits material information concerning the fact that: (a) the Internalization makes no economic sense to the Class and the Company given the likelihood that the Company will liquidate starting January 30, 2008; (b) they purport to sell the Advisor to the Company, but will continue to extract fees from the Company for advisory-type services; (c) recent comparable transactions reveal that the value placed on this Advisor is excessive and the Internalization transaction itself is not justified; (d) the Internalization is being used as an alternative exit strategy for the Advisor and its owners to end-run existing contractual provisions governing the Advisor's fees and to extract fees when they otherwise could receive nothing; and (e) the so-called fairness opinion obtained by Defendants to support the Internalization and the value of the Advisor is materially flawed and based on unsupported assumptions. The Complaint also alleges that the Advisor and certain Defendants owe fiduciary duties to the shareholders and the Company and breached those duties by entering into the Internalization which constitutes an abusive and self- dealing transaction, a waste of the Company's assets and puts their own personal self-interests above those of the Company and its shareholders.
According to a press release dated April 27, 2007, on April 17, 2007 the United States District Court in the District of Maryland transferred the lawsuit to the United States District Court, Northern District of Georgia, Case No. 1:07-cv-00862-CAP.
On June 7, 2007 the judge entered an order approving a motion from Washtenaw County Employees Retirement System to be appointed lead Plaintiff in this action. The law firms of Chimicles & Tikellis LLP, Labaton Sucharow & Rudoff LLP and Chitwood Harley Harnes LLP were appointed as co-lead Counsel for the Class. The action shall be Captioned: In Re Wells Real Estate Investment Trust, Inc. Securities Litigation; Civil Action Number: 1:07-CV-00862-CAP. On June 27, 2007 Plaintiffs filed their amended Complaint in conjunction with a derivative Complaint for violations of securities laws and breach of fiduciary duties.
Defendants filed their motion to dismiss the amended Complaint on August 13, 2007. On March 31, 2008, the Judge Charles A. Pannell, Jr., granted the motion in part, dismissing Counts III through VII in their entirety. Counts I and II were dismissed with the exception of allegations of failure to disclose details of the Lexington offers. Plaintiffs were given twenty days to amend the Complaint addressing the deficiencies in the original. On April 21, 2008, the lead Plaintiff filed a Second Amended Complaint. Instead of filing a second motion to dismiss, Defendants answered the allegations of the Complaint and discovery began. On June 23, 2008, the Plaintiff filed a motion to certify the class. On October 7, 2008, Judge Charles A. Pannell, Jr. signed the Order granting the motion to certify the class. On September 16, 2009, Judge Charles A. Pannell, Jr. signed the Order granting the motion to appoint the law firms of Chitwood Harley Harnes LLP; Chimicles & Tikellis LLP; and Labaton Sucharow LLP as Class Counsel.
On December 4, 2009, the lead Plaintiff filed a Motion for Partial Summary Judgment while the Defendants filed a Motion for Summary Judgment. On August 2, 2010, Judge Charles A. Pannell, Jr. denied the Defendants’ motion for summary judgment, and granted in part and denied in part the Plaintiffs’ motion for partial summary judgment.
On September 26, 2012, the Defendants’ motion for summary judgment was Granted. A subsequent judgment was entered dismissing the case and ordering the Plaintiff to take nothing and the Defendants to recover their costs of the action.
On October 12, 2012, a Notice of Appeal was filed in the United States Court of Appeals for the Eleventh Circuit.
On November 14, 2012, pursuant to F.R.A.P.11(c), the Clerk certified that the record was deemed complete for the purposes of appeal. On December 31, 2012, a stipulation of appeal was filed pursuant to a motion for Preliminary Approval of Class Action Settlement.
