Submitted: November 14, 2014
William E. Manning, Esquire Saul Ewing LLP
Meghan A. Adams, Esquire Morris James LLP
Jill Agro, Esquire Womble Carlyle Sandridge & Rice, LLP
Petitioners are trust beneficiaries who collectively hold a 78.61% beneficial interest in each of Nominal Defendants Trade Street Property Fund I, LP Liquidating Trust (the "Master Trust"), TSPF Millenia Property Liquidating Series Trust (the "Millenia Trust"), and TSPF Stock Series Trust (the "Stock Trust" and with the Millenia Trust, the "Series Trusts"). They ask the Court to remove, pursuant to 12 Del. C. § 3327, BSF-TSC GP, LLC ("BSF-TSC") as trustee of the Master Trust and Michael J. Fellner ("Fellner" and with BSF-TSC, "Respondents") as trustee of the Series Trusts. They further seek a declaratory judgment that Fellner has acted with gross negligence or willful misconduct in his role as the Millenia Trust's trustee, supposedly entitling Petitioners subsequently to vote, pursuant to the trust agreement and independently of Section 3327, on his removal.
Respondents and Nominal Defendants have moved to dismiss Petitioners' Amended Petition for Removal of Trustees (the "Petition") for failure to state a claim.
A. Formation of the Trusts
Petitioners' status as trust beneficiaries can be traced to their 2008 purchase of limited partnership interests in Trade Street Property Fund, I, L.P., formerly a Delaware limited partnership (the "Limited Partnership"). BSF-TSC, which is controlled by Michael Baumann ("Baumann"),  managed the Limited Partnership as its general partner.
In June 2012, BSF-TSC converted the Limited Partnership into a publicly traded Real Estate Investment Trust (the "REIT"). The Limited Partnership exchanged its ownership interests in various entities for 2, 904, 910 REIT common shares, each valued at $18. As a result, these shares, along with an indirect interest in two adjoining parcels of real estate (together, the "Millenia Property"), were the Limited Partnership's only primary assets. Accordingly, the Limited Partnership entered into a Plan of Liquidation and Liquidating Trust Agreement (the "Plan"), whereby its assets were transferred to the Master Trust. BSF-TSC was named trustee and the former limited partners were designated as beneficiaries. The Master Trust was to manage the completion of the construction of an apartment project on one of the Millenia Property parcels, before selling the two parcels for cash and distributing the proceeds to the trust's beneficiaries (the "Millenia Business Plan").
BSF-TSC subsequently divided the Master Trust's assets among three series trusts, with the Millenia Trust and the Stock Trust holding 98.5% of the Master Trust's total equity value. The Millenia Trust received the Millenia Property, and the REIT common stock was placed in the Stock Trust. BSF-TSC appointed Fellner, allegedly a close friend of its controller Baumann, as the trustee of both.B. Petitioners' Concerns
1. Fellner's Lack of Independence from BSF-TSC
According to Section 2.2(c) of the Plan, BSF-TSC was responsible for selecting a trustee for the Millenia Trust "who is not affiliated with and is independent of the [Limited] Partnership and [BSF-TSC]." However, BSF-TSC, which was controlled by Baumann, selected Fellner. While Fellner's relationship with Baumann alone may not disqualify him as a trustee, Petitioners ...