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CommonWealth Reit Message Board

  • scamhunter9111 scamhunter9111 Mar 3, 2013 11:25 PM Flag

    Purpose of an injunction or restraining order

    It is actually pretty simple, to prevent a premature and irreversible action that can create harm to the petitioner. Seems like delaying the stock issuance should be a classic case. I would think CWH would have to convince the court why it needs to be done right now, and will toss out some smog, but I can't see how they could win other than the court's reluctance to interfere with management,.

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    • When a shareholder is unhappy with director action, breach of fiduciary duty is an easy charge to make but a difficult charge to prove. Under the so-called "business judgment rule," a director who exercises the care of an ordinarily prudent person in a like position under similar circumstances cannot be held liable for the outcome of business decisions absent fraud, illegality, or conflict of interest. A director must sufficiently inform himself before making a decision, and is entitled to rely on opinions of others within their areas of competency. Also, there can be a provision in the corporation's articles relieving the director of liability; such a provision is valid unless the director acted in bad faith, intentionally, or in violation of law.

      The problem here is that plaintiffs rely on rank speculation and innuendo to claim that the Board suspected a tender offer was coming because of unusual double-volume trading activity and accumulation of shares, and that the secondary was an unreasonable defensive measure that was adopted in haste to protect their golden goose and prevent a buyout. Rank speculation and innuendo is usually not enough to subject a business decision to heightened scrutiny. Also, as I mentioned in another post, plaintiffs should be estopped from complaining of the issue of conflict of interest (RMR), if they previously ratified those transactions and the Board membership through failing to vote (unless the voting process was unfair, or unless the Board members failed to disclose their ownership interest in RMR).

      If plaintiffs can demonstrate that the secondary offering was not a prudent business decision made to pay off the senior notes, but rather was adopted as a buyout defensive measure, the burden of proof will fall onto the Board that they reasonably believed the takeover would be bad for shareholders. In this case, that might come down to the reputation/credibility/solvency of Corvex & Related.

 

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