Bloomberg News

Centerline Settles Suit Over Preferred Stock Sale

April 09, 2009

Centerline Holding Co. (CHC:US), the lender chaired by New York real-estate developer Stephen M. Ross, tentatively agreed to settle a lawsuit challenging the sale of $131.2 million in preferred stock to a company headed by Ross.

The settlement, which must be submitted to a federal judge in New York for approval, also would resolve lawsuits in Delaware Chancery Court, according to papers filed today in Wilmington.

“Defendants continue to believe that their conduct is fully protected” under business law, Centerline lawyer Srinivas M. Raju told Chancery Judge Donald F. Parsons Jr. in a letter. “Nevertheless, the parties have been able to reach a consensual resolution after a protracted arm’s length process.”

In one Delaware lawsuit, Centerline shareholder Peggy Off contended in early 2008 that the preferred stock sale to The Related Cos., founded by Ross, would dilute the value of her 270 shares.

Ross, 68, bought most of the outstanding shares of the Miami Dolphins in January to become managing partner. He is chairman of Related and chairman and managing trustee of Centerline.

Off and the company reached an earlier tentative settlement in Delaware a year ago and Parsons declined to approve the agreement last November in favor of the “broader” New York action.

Contingent on Dismissal

Parsons put the Delaware action on hold pending resolution of the New York case, and Raju said in his letter to the judge that the New York settlement “is contingent upon” dismissal of the Delaware litigation.

Stuart M. Grant, a plaintiffs’ attorney in the Delaware litigation, said in a phone interview today that he is still considering the New York settlement.

In this week’s settlement, the convertible preferred stock’s conversion price would be reset from $10.75 to $12.35, with a dividend rate lowered from 11 percent to 9.5 percent. Company insurance would pay shareholders’ lawyers $1.3 million in fees and expenses.

Elizabeth Haukaas, a Centerline spokeswoman, didn’t immediately return a call for comment on the settlement.

New York-based Centerline rose 5 cents to 26 cents in over- the-counter trading at 3:45 p.m. New York time.

The New York case is Carfagno v. Schnitzer, 08CV912, U.S. District Court, Southern District of New York (Manhattan). The first Delaware case is Peggy Off v. Stephen Ross, CA3468, Delaware Chancery Court (Wilmington).

To contact the reporters on this story: Phil Milford in Wilmington, Delaware, at pmilford@bloomberg.net; Jef Feeley in Wilmington at jfeeley@bloomberg.net.

To contact the editors responsible for this story: David E. Rovella at drovella@bloomberg.net.


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