The Empire State Building is pictured through a rain-splattered window in Manhattan. Credit: Getty Images
A New York state judge has thrown out a lawsuit in which longtime investors in the Empire State Building claimed they were shortchanged out of hundreds of millions of dollars by the real estate magnates who took the iconic skyscraper public last October.
In a decision made public on Monday, Justice O. Peter Sherwood of the New York State Supreme Court in Manhattan said the investors waived their right to sue Peter Malkin and his son Anthony when they agreed in May 2013 to settle earlier claims over the building's fate for $55 million.
The December 2013 lawsuit accused the Malkins of acting in bad faith before the IPO by aborting a "bidding war" for the property, spurning all-cash offers of up to $2.3 billion for the building and $1.4 billion for Empire State Building Associates LLC ("ESBA"), which held the title and master lease.
Instead, the plaintiffs, suing on behalf of more than 2,800 ESBA investors, said the Malkins tried to inflate the value of 17 lesser properties they controlled by packaging them and the building into Empire State Realty Trust Inc, a real estate investment trust.
They said the REIT's Oct. 1 initial public offering valued the Empire State Building at just $1.89 billion, and ESBA at a mere $1.1 billion.
Sherwood, however, said the plaintiffs had "asserted the same claim (breach of fiduciary duty) against the same defendants concerning the same transaction," despite having accepted a "covenant not to sue" in the earlier settlement. "As such the current claim is barred."
John Rizio-Hamilton, a lawyer for the plaintiffs, said: "We disagree with the court's recitation of the facts and application of the law, and our clients will determine the next steps."
Thomas Dewey, a lawyer for the Malkins, said: "We are gratified by the court's decision."
ESBA was created in 1961 by Lawrence Wien, the father-in-law of Peter Malkin, and shares were sold privately. It had been supervised by a Malkin company, Malkin Holdings LLC, which was succeeded by Empire State Realty Trust.
Opened in 1931, the Empire State Building has been featured in movies including "King Kong" and "Sleepless in Seattle." It was the world's tallest building for about four decades, until it was passed by the original World Trade Center's north tower.
Empire State Realty Trust went public at $13 per share, the low end of the forecast range. The stock closed up 15 cents at $16.45 in Tuesday trading on the New York Stock Exchange.