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, when the Second Circuit unanimously affirmed the dismissal of a shareholder lawsuit challenging the 2017 merger of two AR Global-sponsored REITs, American Finance Trust (AFIN) and Retail Centers of America.

Paul, Weiss had previously persuaded Judge Lorna G. Schofield in the Southern District of New York to dismiss the action with prejudice. The plaintiff, an AFIN shareholder, asserted federal claims under Sections 14(a) and 20(a) of the Exchange Act, as well as state law claims, against AFIN, its outside advisor, American Finance Advisors, AR Global, and two AR executives, CEO Nicholas Schorsch and AR Capital co-founder William Kahane. In her complaint, the shareholder alleged that the defendants issued materially misleading proxy materials in connection with the merger, arguing that the proxy failed to disclose that certain terms of the advisory agreement between the REIT and its outside advisor were too favorable for the advisor. The plaintiff also brought state law shareholder class action claims against the advisor, AR Global, Schorsch and Kahane for breach of fiduciary duty and aiding and abetting the same.

The Second Circuit affirmed Judge Schofield’s ruling dismissing the suit in its entirety. In particular, the Second Circuit held that the plaintiff failed to identify any materially misleading misrepresentations or omissions in the proxy materials and that the plaintiff lacked standing to assert the breach of fiduciary duty claim because it was derivative.

The Paul, Weiss team included litigation partner Audra Soloway, who argued the appeal.