Three global real estate giants including Australia’s Westfield Group are locked in settlement talks as a decade of litigation stemming from the $US5.3 billion ($5.6bn) carve-up of the North American assets of Dutch giant Rodamco comes to a head.
The three groups — Westfield America, Simon Property Group, and The Rouse Co — pounced on the 35 shopping malls and related assets in 2001 and 2002, but were slapped with a $US2.3bn lawsuit two years later.
The problems arose from the purchase of Urban Shopping Centres, an Illinois limited partnership that owned high-end retail shopping centres across the US, as part of the Rodamco deal.
The case, which was launched by the minority partners in Urban that hold about 5.6 per cent, has followed the trio as they restructured, with the US mall giant General Growth Properties buying Rouse in 2004 and Westfield America taken back into the Westfield Group fold in a restructure that year as well.
Westfield last month provided an update on the lawsuit by the minority partners in Urban in documents lodged as part of the reorganisation of its $70bn empire into separate Australasian and international divisions.
That deal has been re-cut in an attempt to address the concerns of Westfield Retail Trust investors about the high price of the local platform.
The US lawsuit goes to trial on May 27 after several years of discovery and related appeals, according to disclosures this month by General Growth Properties.
Earlier cases have focused on allegations that the trio took legal advice on how to structure a “synthetic partnership” in order to evade the contractual terms and avoid legal and fiduciary obligations they owed as Urban’s general partner.
The were alleged to have allocated Urban’s properties among themselves, stopped growing Urban’s business through acquisitions or ground- up developments, disregarded partnership agreement terms, as well as of stealing Urban’s opportunities for themselves.
The case took a turn last November when an Illinois court granted the Urban minorities’ motion for a ruling that the general partner of Urban had breached its fiduciary duties by failing to prevent Simon, Westfield America Trust and Rouse/GGP and their affiliates from taking actions not in Urban’s best interest.
The court also ruled that the defendants had breached fiduciary duties owed to Urban by usurping certain asset-acquisition opportunities, including properties acquired by Westfield America subsequent to 2002. The court further ruled that Westfield America Trust, Simon, Rouse/GGP and their subsidiaries were bound by contractual and fiduciary duties owed to Urban.
But the summary judgment opinion did not address issues of damages or other relief that is being pursued by the Urban minorities.
The plaintiffs’ share of the damages alleged to have been suffered by Urban as a consequence of the actions of the defendants would be approximately an estimated $US128 million — or 5.6 per cent of the total alleged damages of about $US2.3bn.
The claim also seeks about $US42m in additional damages allegedly suffered. Westfield America Trust, as the owner of about 50 per cent interest in Urban, would be responsible for its allocative share of any damages.
Urban’s minorities are also seeking further equitable relief.
Westfield and the US groups have been “vigorously defending” the litigation since 2004 and intend to continue to do so, including contesting the alleged damages and other remedies sought, Westfield documents said.
The Australian group declined to comment yesterday.
However, it would be hoping that the settlement talks that started before last November’s ruling yield results.