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Neuberger Berman Real Estate Income Fund, Inc. v. Lola Brown Trust No. 1B
AMD 04-3056, 2007 WL 1354854, D.Md., 05/08/2007
Holding
(1) A family trust, when grouping with other entities which, as a whole, passed on its plenary authority over its assets to an investment adviser, is not classified as a “investment company” under the provision of the Investment Company Act which prohibits an investment company from purchasing more than three percent of the outstanding voting capitol stock of any registered investment company; and
(2) The Investment Company Act does not prohibit a closed-end investment company from issuing more than one “poison pill” in connection with a single tender offer.
Detailed Summary
This action arose out of a hostile tender offer which sought to take control of plaintiff Neuberger Berman Real Estate Income Fund, Inc. (“NRL”), which is a closed-end investment company incorporated in Maryland, investing primarily in real estate securities. NRL is subject to the Investment Company Act of 1940. Trusts, which made partial tender offer to acquire just over 50% of the outstanding shares of plaintiff, sought a declaration that the poison pills, or defensive measures meant to thwart the tender offer adopted, by plaintiff violated the Investment Company Act.
It was found by the district court that since the tender offeror did not voluntarily divest itself of what amounted to “control shares” before offeree’s board’s opt-in, it remained free to vote those shares without being violative of the provisions of Maryland Control Shares Acquisition Act (MCSAA). However, tender offeror’s exemption from the restrictions of MCSAA was capped at the quantity of “control shares” it owned as of board’s opt-in. The heart of the matter is whether the trustees have the authority to exercise control and not whether or not the trustees choose to exercise that authority. As a matter of law, the trustees have the requisite authority and have selected an affiliate which would advise them in the management of the funds under their control. This delegation of authority does not strip the trustees of their authority, notwithstanding the fact that two of the individual trustees did not even know of the tender offer in advance, because they ultimately have the ability to determine how funds are invested; if such person fails to invest in a manner consistent with their wishes, they are free to do away with him. In respect to the defensive measures, the court said poison pills serve legitimate functions which create no fiduciary duty issue. Each of such poison pill is to expire not later than 120 days after its issuance.
Service
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