Kahn v. Portnoy

2008 WL 5197164 (Del. Ch. 2008)

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Nature of the Case

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Facts

The nominal defendant TravelCenters of America, LLC (TA) is a publicly traded Delaware LLC. Kahn (P) is a TA shareholder. Hospitality Properties Trust (HPT) is a publicly traded real estate investment trust. Hospitality owns real property, some of which it leases to TA. Reit Management & Research LLC (RMR) is a privately owned company held by defendant Barry M. Portnoy (D) and his son, Adam D. Portnoy, with D as the majority beneficial owner. RMR provides management services to companies that own and operate real estate, including TA and HPT. D is a director of TA and HPT. D is also the founder and a director of: HRPT Properties Trust (“HRPT”), a publicly traded REIT that primarily owns office buildings; Senior Housing Properties Trust (“SNH”), a publicly traded REIT that primarily owns assisted living facilities and nursing homes; and Five Star Quality Care Inc. (“FVE”), a publicly traded company that operates senior living facilities leased from SNH. D was a partner at the law firm of Sullivan & Worcester LLP from 1978 to 1997 and was chairman of that firm from 1994 to 1997. D’s wife is the founder of Immigrant Learning Center, Inc. (the “ILC”), a not-for-profit adult learning center based in Malden, Massachusetts. P alleges that the individual director defendants, RMR, and Sullivan & Worcester LLP make regular financial contributions to the ILC. O’Brien is a director of TA and its President and Chief Executive Officer. O’Brien is also Senior Vice President of RMR and is President and a director of RMR Advisors, Inc. (“RMR Advisors”), an affiliate of RMR that serves as an investment advisor for seven publicly held closed-end mutual funds (the “RMR Funds”). O’Brien is also the President of five of the RMR Funds and is a trustee of each of the RMR Funds. Koumantzelis is a director of TA and FVE, a trustee for each of the RMR Funds, and the chairman of the board of trustees of the ILC. Koumantzelis was a director of SNH between 1999 and 2003 and was a trustee of HPT from its founding in 1995 until 2007. For 2007, Koumantzelis was paid $94,480 in fees as a director of TA, $74,440 in fees as a director of FVE, and $43,750 in fees as trustee for the RMR Funds. Defendant Barbara D. Gilmore is a director of TA and FVE. Gilmore worked at Sullivan & Worcester LLP from 1993 to 2000. Since 2001, Gilmore has been a clerk to a judge in the United States Bankruptcy Court for the District of Massachusetts. For 2007, Gilmore was paid $89,480 in fees as a director of TA and $70,940 in fees as a director of FVE. Defendant Patrick F. Donelan is a director of TA and a trustee of HRPT and the ILC. Donelan retired from his position as a Managing Director at Dresdner Kleinwort Wasserstein in 2001 and from July 2001 through December 2002 was Chairman and Chief Executive Officer of eSecLending (Europe) Ltd. For 2007, Donelan was paid $88,980 in fees as a director of TA and $73,600 in fees as a trustee of HRPT. D founded RMR and HRPT in 1986. HRPT formed and spun off HPT in 1995 and SNH in 1999. On September 18, 2006, HPT entered an agreement to purchase TravelCenters of America, Inc. (“Old TA”) for approximately $1.9 billion, and on October 10, 2006, HPT created TA as a wholly owned subsidiary. HPT retained Old TA’s real estate, leased the real estate to TA, transferred Old TA’s operating assets to TA, and spun off membership interests in TA to HPT shareholders. TA entered into a series of agreements with HPT and RMR right before it was spun off. On January 29, 2007, TA, HPT, and RMR entered into an agreement whereby TA agreed to give all companies managed by RMR the right of first refusal relating to the participation by TA in any acquisition of real estate, including a right of first refusal for any lease or finance agreement for any of its locations. On January 31, 2007, TA entered into a management agreement with RMR whereby TA would pay RMR for management and administrative services. This agreement specified the nature of the relationships between TA, HPT, and RMR and provides that in the case of a conflict of interest “RMR will act on its own behalf and behalf of HPT . . . and not on [TA’s] behalf.” HPT agreed to acquire Petro Stopping Holdings, L.P. for $630 million plus $25 million in transactions costs, and TA agreed to acquire Petro Stopping Centers, L.P. (“Petro Centers”), a truck stop operator with operations throughout the United States (collectively the “Petro Transaction”). The transaction was organized so that HPT acquired the real estate of 40 Petro Centers truck stops. HPT then leased those facilities to TA (the “Petro Lease Transaction”) pursuant to a May 30, 2007 lease agreement (the “Petro Lease Agreement”). P alleges that the terms of the Petro Lease Agreement are more favorable to HPT than to TA and require TA to pay HPT above-market rent. P alleges that TA’s directors breached their fiduciary duties to TA by approving the Petro Lease Transaction, a transaction plaintiff alleges was designed to benefit HPT, RMR, and D at the expense of TA. P filed a derivative action, and Ds moved to dismiss.