CasesTravelCenters of America LLC Derivative Litigation for Self-Dealing in Conflicted Transactions
Gardy & Notis, LLP has been appointed by the Court as lead counsel for shareholders of TravelCenters of America LLC (AMEX: TA) seeking to recoup damages against Barry Portnoy and the other directors of TravelCenters based on allegations that the board approved the company's acquisition of Petro Stopping Centers on terms that provided for TravelCenters to pay above-market rent to another Portnoy-created entity, Hospitality Properties Trust (NYSE: HPT). TravelCenters and Hospitality Properties Trust are part of a web of interrelated entities formed by Portnoy and managed and run through Portnoy's privately held company, Reit Management & Research, LLC.
Gardy & Notis, LLP partner James S. Notis presented oral argument to the Court on December 3, 2008, in opposition to the motions to dismiss, and on December 11, 2008, the Court issued a 37-page decision denying the motion to dismiss in all respects. The decision states, in part:
[W]hen Portnoy acted on behalf of TA in approving the transaction, his loyalties as an HPT director raise at least a reasonable doubt as to whether he was acting in the best interest of TA. Additionally, Portnoy's interest in RMR means that Portnoy stands to benefit personally from the transaction if TA is bound to pay above market rents to HPT.As explained above, plaintiff has alleged that payments to HPT filter through to RMR (and Portnoy) through agreements between RMR and HPT. Intentionally acting to benefit oneself at the expense of the Company is a quintessential example of failing to act in good faith, which requires a director to act with the good faith belief that his actions are in the best interest of the company. Plaintiff's well pleaded factual allegations, which support the allegation that Portnoy used the Petro Lease Transaction to benefit himself at the expense of the Company, are sufficient allegations of bad faith to survive a motion to dismiss.
Making the same presumptions in plaintiff's favor, I am unable to conclude with reasonable certainty that the other directors acted in good faith when they approved the Petro Lease Transaction. Plaintiff alleges that the members of the TA board were beholden to Portnoy and approved the Petro Lease Transaction to benefit Portnoy at the expense of TA. Plaintiff supports this allegation with specific factual allegations regarding the board members' relationships to Portnoy and Portnoy-related entities.
Additionally, there is not a single director on TA's board that is free of the influence of being otherwise involved in the web of Portnoy-related entities that could question whether the board was acting to benefit the Company and not Portnoy individually. The allegation that the directors intentionally acted to benefit RMR and a director at the expense of the Company, as supported by the well pleaded factual allegations in the complaint, is sufficient to survive the motion to dismiss.
The case is Kahn v. Portnoy, No. 3515-CC, Delaware Court of Chancery.
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