LOS ANGELES (CN) – An apartment developer claims the Archstone-Smith Operating Trust reneged on a $100 million tax-protection agreement, to make itself more attractive to potential buyers. The developer, Howard F. Ruby, and others seek $100 million in damages from one of the largest real estate transactions in history: Tishman Speyer Properties and Lehman Brothers Holdings bought the real estate investment trust in 2007 for $22 billion.
But Ruby and more than 40 affiliates claim in Superior Court that the deal went down to the detriment of their trusts and partnerships.
“In order to get the record-breaking deal done … Archstone-Smith and its trustees acted with total disregard for plaintiffs’ rights and interests,” the complaint states.
This included reducing the purchase price from $64 per share to $60.75 per share – a difference of some $900 million, according to the complaint.
Archstone-Smith “publicly stated that the acquisition price ‘was decreased to take into account potential transaction costs, such as tax protection obligations’,” the complaint states.
A few months before the sale, Ruby and his partners say, they had transferred 39 “first-class apartment communities” worth about $1.8 billion to Archstone-Smith in exchange for ownership interests and “a promise of tax protection.”
Ruby says that Archstone-Smith “forcibly squeezed” him and the other plaintiffs out, and “took the inexplicable position that the Tishman Speyer Trust … would have no obligation whatsoever to make any further payments under the tax-related agreements once the Tishman-Lehman Acquisition closed.”
Ruby claims Archstone-Smith made the deal without the plaintiffs’ consent or approval, “falsely stating that consent was not required.”
Ruby says he agreed to transfer his Oakwood brand of properties to Archstone-Smith primarily for tax benefits, as most of the owners had held the properties since the 1960s and had a “large tax liability.”
He claims that Archstone-Smith agreed not to do anything that would trigger plaintiffs’ tax liabilities for the rest of Ruby’s life or at least 10 years, and to “further indemnify [the plaintiffs] from any resulting tax liability in the event either of them broke that promise.”
“Without this assurance of protection from future tax liability arising from events beyond their control, plaintiffs would not have agreed to transfer the Oakwood properties to the trust,” according to the lawsuit.
The plaintiffs seek $100 million from Archstone-Smith for breach of contract, “plus additional damages.”
Ruby filed a related Superior Court complaint against Tishman Speyer in 2008.
The plaintiffs are represented by Jonathan Steinsapir of Kinsella Weitzman of Santa Monica.