AR Global Wins Dismissal of Class Action Over REIT Merger

Paul, Weiss won the dismissal, on behalf of our clients asset manager AR Global and its co-founder and CEO Michael Weil, of a class action arising from the merger of two AR Global-managed REITS, Necessity Retail REIT, Inc. (RTL) and Global Net Lease, Inc.

In August 2023, the plaintiffs, shareholders of RTL common stock, sued our clients in Maryland state court for aiding and abetting alleged breaches of fiduciary duties by directors of RTL in connection with the merger transactions and for unjust enrichment in connection with the same. They claim that there were conflicts of interest in the merger process, an inadequate price and a lack of disclosure of all material information. Among other assertions, the plaintiffs claim that the defendants collected an enormous windfall of $375 million, or 18% of the value of the combined entity, from the internalization of the advisory entity in connection with the merger.

In our motions to dismiss, we argued that the shareholders failed to raise any well-pleaded allegations that AR Global and Weil knowingly participated in any breaches related to the merger of the two entities. We also argued that plaintiffs lacked standing to challenge the internalization merger transaction because such claims cannot be the subject of a direct action under Maryland law, and that plaintiffs failed to establish the preliminary steps for a derivative suit, among other arguments.

Judge Audrey Carrion of the Circuit Court for Baltimore City granted our motion to dismiss on several grounds. She ruled that the plaintiffs breach of fiduciary claims fail because they do not rebut the presumption of the state's business judgment rule, which offers statutory protections to corporate directors by presuming that they have acted in accordance with the Corporations and Associations Article of the Maryland Code. As such, she rejected the aiding and abetting claim against AR Global and Weil as reliant upon the failed breach of fiduciary duty claims. Judge Carrion also held that the unjust enrichment claims fail because they rely on the failed arguments for breach of fiduciary duty and lack the required additional specificity.

The Paul, Weiss team includes litigation partners Andrew Gordon and Geoffrey Chepiga, who argued the motion.