The original complaint alleges that this Action seeks to remedy the wrongdoing that was, and continues to be, inflicted upon the public shareholders of Inland Western Retail Real Estate Trust, Inc. ("Inland REIT" or the "REIT"), who have been asked to approve a proposed transaction whereby their fiduciaries will improperly receive excessive and unjustifiable consideration. The proposed transaction consists of Inland REIT's acquisition of affiliated entities, which are wholly owned, directly or indirectly, by officers and directors of Inland REIT and their affiliates, in exchange for REIT stock valued at $375 million.
On August 17, 2007, Inland REIT informed its shareholders that it had entered into an agreement and plan of merger (the "Merger Agreement") with the affiliated Advisor and Property Managers that would, if approved, result in the functions of the Advisor and Property Managers being merged with, and internalized into, Inland REIT (the "Internalization "). A Final Proxy ("Proxy") seeking approval of the Internalization was filed with the SEC on September 10, 2007. The price-tag for this Internalization is $375 million, comprised entirely of 37,500,000 shares, representing 7.7% of the REIT's total shares outstanding, of Inland REIT's common stock (the "Internalization Consideration").
By virtue of his current ownership of REIT stock and acquiring REIT stock in the Internalization, one individual defendant, will own over 30 million shares of Inland REIT's stock valued at over $300 million (using the per share price of $10 used to calculate the Internalization Consideration) after the Internalization is consummated.
On September 10, 2007, Defendants filed and disseminated the Proxy pursuant to which Inland REIT's shareholders are being asked to approve this improper, self-dealing Internalization. Defendants failed to disclose in the Proxy pertinent and material information about how the Internalization Consideration was determined. Moreover, the information that was disclosed - financial statements which purport to support the fees historically paid to the Advisor and Property Managers in 2005 and 2006 that form the basis for the entities' valuations supporting the Internalization Consideration - is false and misleading.
First, the fees payable to the Advisor (the "Advisory Fees") were not calculated in compliance with the terms of applicable contracts. This resulted in the Advisor receiving more than $60 million in overpayments from the REIT in 2005 and 2006 - in direct contravention of specific contractual provisions. In fact, under the contracts, the Advisor should have, but did not, reimburse Inland REIT over $20 million. These material departures from the contract terms governing fees, artificially distorted the Advisor' s earnings and, therefore, its financial and operating results that were used to derive the price to be paid for the Advisor in the Internalization.
Second, the fees payable by Inland REIT to its Property Managers also were not calculated in compliance with the terms of governing contracts. The fees paid by Inland REIT to its Property Managers were significantly above-market and, thus, excessive fees. These excessive fees inflated the Property Managers' earnings, and therefore, their value in the proposed Internalization.
The Internalization is also timed to circumvent certain provisions set out in the original Advisory and Property Management Agreements that were designed to protect Inland REIT and the shareholders from overreaching by their fiduciaries and to blunt the effect of the inherent conflicts of interest in the REIT being run and managed by the affiliated Advisor and Property Managers. Under the Agreements, in mid-2008, Inland REIT would obtain the right to purchase the Advisor and the Property Managers according to a set formula, which, if properly applied, will, in all likelihood, result in the Advisor and Property Managers receiving as little as zero cash consideration for the same transaction now costing them $375 million.
Consequently, distorted and inflated values have been attributed to the Advisor and the Property Managers, thereby, artificially and improperly inflating the amount of Internalization Consideration to be paid to acquire the Advisor and Property Managers.
None of these material facts were disclosed to the shareholders, in violation of the federal securities laws and state fiduciary duty laws.
Specifically, this Complaint charges Defendants with disseminating a materially false and misleading Proxy in violation of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 ("Exchange Act"), and breaching, or aiding and abetting breaches of, fiduciary duties and contract under state law. Plaintiff brings these claims directly on its own behalf and on behalf of all other public shareholders entitled to vote on the Proxy, and derivatively by Plaintiff on behalf of the Company.
This Complaint also seeks damages on behalf of the Class and injunctive relief to: (a) render null and void any approvals given by shareholders to Inland REIT and its management in response to the materially false and misleading Proxy; (b) rescind the Internalization and Merger, and all ancillary agreements, including employment agreements; and (c) disgorge the Advisor and Property Managers of excessive fees retained in contravention of the Advisory and Property Management Agreements.
According to a press release dated January 30, 2008, the law firms of Chimicles & Tikellis LLP, Labaton Sucharow LLP and Wolf Haldenstein Adler Freeman & Herz LLP announced that they have been appointed as Co-Lead Counsel, and two institutional investors have been appointed as Co-Lead Plaintiffs, by the United States District Court for the Northern District of Illinois in a pending securities class action charging Inland Western Retail Real Estate Trust, Inc. ("Inland REIT"), certain of its directors, officers and affiliates, and William Blair & Company, L.L.C. ("William Blair") with violations of Sections 14(a) and 20 of the Securities Exchange Act of 1934 and/or state law claims.
On June 12, 2008, an Amended Complaint was filed against all against all defendants for violation of federal securities law and for breaches of fiduciary duties and contract. On July 16 and 17, 2008, the defendants filed motions to dismiss the Amended Complaint.
On April 1, 2009, Honorable Robert W. Gettleman issued the Memorandum Opinion and Order on the pending motions to dismiss. According to the Court minutes, motion to dismiss 56 is granted in part and denied in part. The motion to dismiss Court I is granted as to issues 4 and 9, and otherwise denied. The motion to dismiss Counts III through VII is granted. The motions to dismiss by defendant William Blair & Co. Document No. 49 and defendant KPMG Document No. 66 are denied except as noted above. Plaintiffs' second amended complaint is due by May 1, 2009.
On May 1, 2009, the lead plaintiffs filed a Second Amended Class Action Complaint. On May 29, 2009, the defendants filed a motion to dismiss or, in the alternative, to strike previously-dismissed claim in plaintiffs' Second Amended Complaint. On June 4, 2009, the Honorable Robert W. Gettleman denied the motion to dismiss.
According to the Company Form 8-K filed on July 21, 2010, on July 14, 2010, the class action securities lawsuit captioned City of St. Clair Shores General Employees Retirement System, et al v. Inland Western Retail Real Estate Trust, Inc. et al., No. 07 C 6174 (the "Action"), pending in the United States District Court for the Northern District of Illinois (the "Court") was settled by Inland Western Retail Real Estate Trust, Inc. (the "Company") and all other defendants (the "Settlement"). The Settlement remains subject to preliminary and final approval by the Court. If the Settlement receives final approval by the Court, 9,000,000 shares of common stock of the Company will be transferred to the Company from shares of Company stock issued to the owners (the "Owners") of certain entities that were acquired by the Company in its internalization transaction. Pursuant to the Settlement, the Company will pay the fees and expenses of counsel for class plaintiffs up to $10,000,000, although the Company expects that it will be reimbursed by its insurance carrier for a portion of such fees and expense. The Owners (who include Daniel L. Goodwin, who beneficially owned more than 5% of the stock of the Company as of December 31, 2009 ("Goodwin"), and certain directors and executive officers of the Company) have also agreed to provide a limited indemnification to certain defendants who are directors and an officer of the Company if any class members opt out of the Settlement and bring claims against them, but only after such defendants have pursued and exhausted from the Company and the Company's insurance carriers all recovery of damages caused by opt out claims. In addition to final approval by the Court, the Settlement is conditional on the Company and/or Goodwin not exercising a right to terminate the Settlement if class members holding more than an agreed-upon percentage of shares elect to opt out of the Settlement.
On July 22, 2010, the Honorable Robert W. Gettleman signed the Order Preliminarily Approving Class Action Settlement, Granting Conditional Certification of Settlement Class, Approving Notice Plan, and Setting of Fairness Hearing. The Fairness Hearing is set for November 8, 2010.
On November 8, 2010, Judge Gettleman signed the Order approving the settlement and dismissing the action with prejudice. An award of attorneys' fees and reimbursement of expenses in the aggregate total amount of $10,000,000.00 was also granted.