AR Global Wins Affirmance of Dismissal in REIT Shareholder Merger Challenge

Paul, Weiss achieved a significant victory on behalf of AR Global and its executives, including CEO Nicholas Schorsch and co-founder William Kahane, when the New York State Appellate Division, First Department unanimously affirmed the dismissal of a lawsuit arising out of the 2017 merger of two AR Global-sponsored REITs, American Finance Trust (AFIN) and Retail Centers of America.

The plaintiffs, AFIN shareholders, originally asserted disclosure claims in the New York Supreme Court under the federal securities laws in connection with the merger. After we secured the dismissal of parallel disclosure claims in the Southern District of New York (affirmed by the Second Circuit), the plaintiffs sought leave to amend their complaint to replace their disclosure claims with state law derivative claims. In their proposed complaint, the plaintiffs alleged that the defendants breached their fiduciary duties by agreeing to certain terms in the management agreement between the REIT and its outside advisor that were too favorable for the advisor. Justice Andrea Masley denied the motion and dismissed the action because the merger, including the challenged terms of the management agreement, had been disclosed to shareholders and ratified by shareholder vote.

The five-justice panel of the Appellate Division unanimously affirmed Justice Masley’s decision. The appellate court agreed that Maryland law does not permit shareholders to challenge board actions that have been ratified by shareholder vote after full disclosure.

The Paul, Weiss team included litigation partner Audra Soloway, who argued the appeal, and counsel Daniel Sinnreich.