Stay current on changes and developments in corporate law with a wide variety of resources and tools.
Nov. 2 — Apple REIT Ten Inc.'s merger with Apple Hospitality REIT Inc. can be challenged by an investor who held shares in both companies, a federal judge said( Quinn v. Knight , 2016 BL 364504, E.D. Va., No. 3:16-cv-610, 11/1/16 ).
The investor, James Quinn, can bring a derivative action on behalf of Apple Ten, the U.S. District Court for the Eastern District of Virginia ruled Nov. 1.
Judge John A. Gibney Jr. said the court couldn’t find any authority stating that stock ownership in both sides of a merger prevents a shareholder such as Quinn from bringing a derivative action.
A shareholder derivative lawsuit is one brought by a shareholder on the corporation’s behalf, typically against an officer or director.
The court also determined that Quinn could sufficiently represent the interests of Apple Ten despite owning more Apple Hospitality stock than Apple Ten stock prior to the merger.
“Quinn’s economic interests do not create conflicting economic antagonisms which prevent him from adequately representing the interests of Apple Ten,” Gibney said.
Apple Hospitality, a Richmond, Va.-based real estate investment trust (REIT), acquired Apple Ten in September for cash and stock.
In his lawsuit, Quinn claimed that transaction was riddled by conflicts. He said that deal was pushed through by officers and directors of the companies who stood to gain millions of dollars in special compensation.
The $1.28 billion merger—which created a combined entity that owns a portfolio of 236 upscale, select service hotels—was approved by a majority of shareholders of both companies.
Under Virginia law, shareholder ratification of a merger can prevent shareholders from challenging a transaction.
However, the federal court in addressing an issue that hasn’t been considered by the Virginia Supreme Court, determined that shareholders must be “fully informed” about a transaction in order for the ratification defense to apply.
Apply the Delaware ruling, the court found that Quinn had adequately alleged that shareholders weren’t provided complete information about deal and the defendants’ financial interests.
The court in reaching its ruling cited the Delaware Supreme Court’s 2015 ruling Corwin v. KKR Financial Holdings LLC, 2015 BL 323544.
To contact the reporter on this story: Michael Greene in Washington at mGreene@bna.com
To contact the editor responsible for this story: Seth Stern at firstname.lastname@example.org
The opinion is available at http://src.bna.com/jOV.
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)