11 Sept 2017 Cases

Compass Lexecon Client Archstone Defeats $4 Billion Damage Claims in Class Action and Arbitrations

3 minute read


Compass Lexecon President Daniel R. Fischel Testifies Successfully

In August 2017, Judge William Martinez of the United States District Court for the District of Colorado granted Archstone's motions for summary judgment and ordered the entry of a final judgment in favor of Archstone terminating the case. The decision ended 10 years of litigation and avoided $4 billion of potential liability. Archstone was successfully represented throughout by Jonathan Polkes and Caroline Zalka of Weil, Gotshal & Manges.

In late 2007, a group of investors in Archstone, a real estate investment trust, attempted to bring a class action alleging that Archstone breached agreements with class members in the course of implementing a leveraged buy-out. Prior to the buy-out, these investors, and other purported class members, ("Unitholders") received common units of Archstone in exchange for property contributed to the real estate investment trust. In the leveraged buy-out, Archstone gave Unitholders a choice between exchanging their units for preferred units or cash.

Two arbitrations followed where claimants alleged that the choice they were offered was illusory because the preferred units were so economically inferior that they provided no reasonable alternative to the cash option. Claimants argued they were thereby forced to take cash and realize significant capital gains and they were damaged for this reason among others as a result. Compass Lexecon and its President, Professor Daniel R. Fischel, were then retained to analyze the effect of the leveraged buyout and the choice given to Unitholders. In testimony and reports in these arbitrations, Professor Fischel strongly criticized Claimants and their experts for ignoring attributes of the preferred units that were superior to the common units and demonstrated that the terms of the leveraged buyout not only did not harm Unitholders but rather provided them with a windfall. The arbitrators then ruled for Archstone in both instances and rejected the Unitholders' claims in their entirety. A third arbitration ended in a favorable settlement for Archstone.

The dispute then moved to court where the investors were allowed to file an amended complaint. The investors then pressed their case for class certification before Judge William Martinez. An expert for the group of investors filed a report purporting to show how damages could be calculated for class members using a common methodology and that total damages ranged from $1.2 billion to $2.7 billion. Professor Fischel filed a report on behalf of the Defendants explaining that the Unitholders' expert did not reliably measure damages because he relied on numerous assumptions that were contrary to the economic evidence. Judge Martinez agreed, ruling that the opposing expert's "estimates turn on several momentous assumptions, to the point where there can be no confidence that his final figures are anywhere close to the harm the Class allegedly suffered." Judge Martinez certified the class with respect to liability only.

Archstone then filed motions for summary judgment on liability, which Judge Martinez granted, terminating the case. The result was a complete victory for Archstone. Professor Fischel was supported by a team in Compass Lexecon's Chicago office including Jerry Lumer, David Ross, Jessica Mandel, Elizabeth Wall and Laura Yergesheva.

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