Milliken v. American Realty Capital Hospital Advisors, LLC et al. and Hospitality Investors Trust, Inc., No. 18-cv-1757 (S.D.N.Y.)

Chimicles Schwartz Kriner & Donaldson-Smith LLP (“CSK&D”) represents Plaintiff Tom Milliken, derivatively on behalf of Hospitality Investors Trust, Inc. (“HIT”), in a stockholder derivative action against numerous HIT entity and individual Defendants. HIT is a Maryland-incorporated, non-traded real estate investment trust.

Case Background

On February 26, 2018, CSK&D, along with co-counsel Blau & Malmfeldt, initiated this derivative action on behalf of Plaintiff, a HIT shareholder, asserting claims on behalf of HIT for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, breach of contract, and unjust enrichment, and seeking declaratory judgment. Plaintiff filed an Amended Complaint on July 23, 2018.

Prior to filing the Complaint, Plaintiff had made a demand upon HIT’s Board by way of a letter dated July 14, 2017, demanding the Board to investigate and take action to remedy alleged breaches of fiduciary duty related to certain events. Plaintiff’s counsel sent a second demand letter on December 12, 2017 demanding investigation into additional breaches of fiduciary duty. On March 21 and May 1, 2018, the Board adopted resolutions forming a Special Litigation Committee (“SLC”) vested with the authority to investigate the allegations made in Plaintiff’s demand letters and the Complaint, among other sources. On October 11, 2019, the SLC issued its report determining that it was appropriate to pursue certain claims asserted in the Complaint against certain Defendants.

Proposed Derivative Settlement

Between June and December 2019, counsel engaged in extensive settlement discussions with counsel for most of the Defendants concerning a potential resolution of the action. On December 27, 2019, after months of extensive discussions, arm’s-length negotiations, participation in in-person and telephonic mediation sessions, and exchange of settlement proposals and counter-proposals, Plaintiff reached an agreement-in-principle with most of the Defendants.

Assuming it is approved by the Court, the Settlement provides for the following relief:

  • A cash settlement payment to HIT of $14,931,108.47
  • 66,555 shares of Company stock tendered by American Realty Entity Defendants to HIT
  • A cash settlement payment of $250,000 and tender of 16,949 shares of Company common stock from current CEO, Jonathan P. Mehlman, to HIT

Additionally, the Settlement provides for a proposed fee award to Plaintiff’s counsel in the amount of $2,250,000, which is inclusive of fees and expenses, and a $2,500 case contribution payment to the Plaintiff. The Settlement also requires HIT to pay certain legal fees incurred by the Defendants in connection with this lawsuit, which HIT is legally required to pay.

The proposed Settlement, including the fee award, requires both preliminary and final approval from the Court before it is effective. On February 20, 2020, the Court granted preliminary approval of the proposed Settlement.

The Court has scheduled a Settlement Hearing for June 9, 2020 in New York to determine whether to grant final approval to the Settlement.

Attorneys for this case:

Nicholas E. Chimicles
Kimberly M. Donaldson-Smith