Simon family dynasty split by lawsuit over real estate company
The family that owns Simon Property Group (SPG), the nation’s largest mall owner, is embroiled in an internal feud over a separate real estate company that controls a portion of the family’s assets.
Herbert Simon, co-founder of Indianapolis-based SPG and a majority owner of the NBA’s Indiana Pacers, is suing the family of his late nephew, David Simon, for allegedly unilaterally implementing a corporate restructuring that purportedly stripped the elder Simon and other equity holders of their preferential interests in a family company.
David Simon, who died in March after a battle with pancreatic cancer, was the CEO of SPG. His uncle maintains that shortly before his death, the younger Simon secretly maneuvered to dissolve the SFG Company LLC, a private firm that held family real estate assets that were not part of the larger SPG.
According to the complaint filed in Marion Superior Court of Indiana on July 31, Herbert Simon and other family members allege that the new company stripped certain SFG equity holders of special distribution rights and gave management more control over the company’s assets.
The plaintiffs claim the moves were done to benefit David Simon’s family and those of his siblings. Herbert Simon maintains that he and other family members were not informed about the transaction until after SFG was dissolved. The plaintiffs want SFG to revert to its original corporate and management structure and for them to receive compensatory and punitive damages.
Herbert Simon and his late brother Melvin created Simon Property Group in 1995, which became the nation’s largest mall owner. At the same time, they created the smaller company SFG, which was owned by members of the Simon family and held interests in certain real estate properties outside the publicly traded SPG.
The suit alleges that the SFG operating agreement gave certain equity holders, including founders Melvin and Herbert Simon, the right to greater distributions than other equity holders. It also states that these special rights were protected from changes without the consent of each member who is directly impacted. The agreement prohibits the manager, who was SPG CEO David Simon before his death, of making unilateral changes without the consent of the equity holders.
The suit states that David Simon had been in discussion with his uncle Herbert over the past few years about liquidating SFG. During the negotiations, David Simon allegedly insisted that he had the right to buy out the interests of Herbert and other family members in SFG for discounted values. His uncle refused, proposing fair market value for the assets.
Talks were at an impasse, according to the complaint. But less than two weeks before David Simon died, he transferred the assets in SFG to the newly created SFG HoldCo LLC, in a contribution and exchange agreement. Those assets were then distributed to SFG members and assignees, the complaint states.
“David kept plaintiffs in the dark for a reason: the actions he took through the [role of] manager [of SFG] benefited David, his family and his siblings to the detriment of plaintiffs, enriching himself and his family at plaintiffs’ expense,” the lawsuit contends. “David used his control of the manager [of SFG] to deprive plaintiffs of, among other things, their preferential interests and to take by fiat what he could not get through negotiations with [his uncle] Herbert.”
Since his death, David’s son, Eli, has taken over the chief executive position at SPG and is the manager of SFG. He told The Real Deal that the lawsuit is a “meritless complaint,” and that he remains focused on leading the mall giant and delivering long-term shareholder value.
