Compass Lexecon’s Client Prevails in Protracted Litigation Over Bases for Incentive and Asset Management Fees

Compass Lexecon’s clients, SHP Asset Management (SHP) and its affiliates (Plaintiffs), and Defendant CalPERS had invested in SHP Senior Housing Fund, which was formed to invest in retirement homes. SHP, as fund manager, was entitled to receive an Incentive Distribution at the end of 2007 and every seven years thereafter and an Asset Management Fee every quarter. In late 2007, CalPERS retained Duff & Phelps to appraise the retirement homes and affiliated nursing facilities for the purpose of determining the Incentive Distribution. In June 2008, CalPERS ordered Duff & Phelps to revise its earlier appraisals and sought to replace the original appraisals with revised appraisals that placed lower values on the properties. Compass Lexecon expert Rajiv Gokhale testified on behalf of Plaintiffs that the reasons offered by Duff & Phelps for revising its appraisals did not justify the significant reduction in value from the original appraisals.

On May 13, 2013, Chancellor Leo E. Strine, Jr. of the Delaware Chancery Court decided the dispute in Plaintiffs favor, specifically that CalPERS Incentive Distribution should be based on the original Duff & Phelps appraisals. Chancellor Strine’s opinion stated that Mr. Gokhale “testified convincingly that the two reasons that Duff & Phelps gave for restating the appraisals … could not justify this huge reduction in value” from Duff & Phelps’ original to its revised appraisals.

Compass Lexecon worked with Matthew F. Davis, Timothy R. Dudderar, and Matthew E. Fischer of Potter Anderson & Corroon LLP. Rajiv Gokhale was assisted by Avisheh Mohsenin, Michael Pugh, and others in our Chicago office.