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An investor in the partnership that owns the Park Towne Place apartment complex on the Benjamin Franklin Parkway in Philadephia will be able to stop a merger of the company because he and other limited partners weren’t given the chance to vote on it, the Pennsylvania Common Pleas Court ruled last week in Wurtzel v. Park Towne Place Apartments LP. In an apparent case of first impression in the commerce program, Administrative Judge John W. Herron said the merger and forced buyout that PTP and the other defendants attempted to impose on limited partners without obtaining their required consent violated the two-thirds supermajority requirement and therefore constituted an illegal merger. He also said such a requirement can’t be circumvented by a shareholder merely because it becomes a majority shareholder. To allow the merger to go through, Herron wrote, “would irreparably harm Wurtzel and his fellow limited partners by depriving them of their right to vote.” MERGER ATTEMPT AIMCO, a group that manages Park Towne Place, began making offers to the limited partners in 1999 to buy PTP units. The company continued to increase its offers, starting at $5,000 per unit and increasing to almost $67,000 per unit. On May 29, 2001, the partnership sent a letter to the limited partners announcing that the partnership would merge with Park Towne Place Transitory Co., an entity wholly owned by AIMCO, on June 29. The letter also said that AIMCO’s interest in Park Towne Place — more than 58 percent at the time — did not require the approval of the other limited partners and that the merger would force minority limited partners to give up their interests in exchange for $81,422 in cash, or 1,776 AIMCO partnership units. On June 28, Alan Wurtzel filed an individual, derivative and class action for the proposed class of 194 limited partners. He also successfully petitioned for a temporary restraining order and preliminary injunction against PTP and the other defendants. The TRO barred the defendants from engaging in “any transaction which would limit, transfer, assign or extinguish the rights of any limited partner in [the partnership], including but not limited to the contemplated merger of [the transitory company] with and into the partnership.” SUPERMAJORITY REQUIREMENT The defendants argued the court should ignore the supermajority requirements of the partnership agreement because AIMCO could simply amend the agreement as majority shareholder. The case is governed by Delaware law, and although Herron said there “seemed to be no published decisions addressing amendment of a supermajority voting provision in a limited partnership agreement,” he analogized the common law from the 1938 Delaware Chancery Court decision Sellers v. Joseph Bancroft & Sons Co. In Sellers, the court rejected the argument that a simple majority vote was sufficient to eliminate the supermajority voting requirements in a corporation’s charter. If that were true, the court said, it would defeat the purpose of the percentage provisions in the charter and would render those safeguards “utterly illusory.” Likewise, in Centaur Partners IV v. National Intergroup Inc., a 1990 Delaware Supreme Court case, the court held that amendment of a supermajority provision in a corporation’s shareholder-adopted charter and bylaws by less than a supermajority would “completely abrogate the intention of the stockholders who adopted those provisions. …” “The court predicts that Delaware courts would apply the Sellers/Centaur Partners rule to a supermajority provision in a limited partnership agreement,” Herron wrote. FIDUCIARY DUTY AND HARM PTP breached its fiduciary duty of full and fair disclosure by not informing the limited partners they could vote on the merger, Herron said. PTP also represented in the May 29 letter that it could effect the merger without their votes, which was untrue, the court said. Finally, Herron said PTP’s depriving the limited partners of their right to vote constituted irreparable harm unworthy of simple money damages for compensation. “If equity will bar a company from forcing a shareholder to make an uninformed vote, then equity will certainly bar the company from preventing the shareholder from voting at all,” said Herron. Wurtzel was represented by Marc J. Zucker and Theodore R. Mann of Mann Ungar. All defendants were represented by Rodney Page of Washington, D.C.’s Bryan Cave and local counsel Ronald J. Shaffer of Fox Rothschild.

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