Herb Simon sues family of late nephew David over dissolution of real estate interest

Simon Property Group co-founder Herb Simon is suing family of his late nephew, David, over the fate of a 31-year-old real estate offshoot of the shopping mall giant.

Simon and other equity holders in SFG Co. LLC are accusing that company’s managers of dissolving the business to benefit David Simon’s family and keeping others in the dark while it happened, according to a lawsuit filed late last week in Marion Superior Court.

Former Simon Property Group Chairman and CEO David Simon died in March from pancreatic cancer, and his 38-year-old son, Eli, took over as chief executive and president.

Eli Simon called the lawsuit from his uncle, who also is primary owner of the Pacers Sports & Entertainment, a “meritless complaint.”

“I will continue to dedicate all of my focus, time and energy on leading Simon and achieving outstanding long term shareholder value,” he said in an emailed statement to The Indiana Lawyer.

Attorneys for the plaintiffs did not respond to several requests for further comment.

The recently filed complaint details the latest legal squabble among the Simons after the death of a prominent family member. David and other children of Herb Simon’s brother, Mel, fought in court with his second wife, Bren, over his roughly $2 billion estate after he died in 2009.

The most recent case involves a company Mel and Herb Simon formed in 1995 to hold interests in real estate properties that didn’t become part of Indianapolis-based Simon Property Group when it went public, according to court documents.

When it was established, SFG Co.’s operating agreement gave certain members of the company, including the plaintiffs, the right to receive greater distributions than other equity holders. The Simon brothers were among those equity holders.

The operating agreement protected those preferred equity holders by prohibiting any amendments to their distribution rights without the consent of each member. The agreement also prohibited SFG Manager LLC from unilaterally “mak[ing] it impossible to carry on the ordinary business of [SFG],” according to the lawsuit.

Melvin Simon & Associates Inc., the predecessor to Simon Property Group, acted as the original manager in charge of SFG Manager. In 2013, David Simon became the sole member and manager.

Eli Simon is the current head of SFG Manager.

According to the lawsuit, David Simon had been in discussions in recent years with his 91-year-old uncle to liquidate SFG Co. when Herb Simon dies.

During the negotiations, David insisted on having the right to buy out the interests of Herb and his family in SFG Co.’s real estate interests at “heavily discounted values,” the complaint states. It adds that when Herb proposed more fair market valuations, David refused and terminated the negotiations.

Less than two weeks before 64-year-old David Simon died, he executed written consent as SFG Manager to form SFG HoldCo LLC, transferring all of SFG Co.’s assets to HoldCo in exchange for membership interests in HoldCo, according to court documents.

SFG Co. then distributed the new HoldCo membership interests to the company’s equity holders before the company was dissolved. HoldCo is considered a continuation of SFG Co. but is governed by a different operating agreement.

SFG Co. was voluntarily dissolved in late March, according to the Indiana Secretary of State’s Business Services Division.

The plaintiffs allege David Simon kept them in the dark about SFG Co. in order to benefit his immediate family and siblings after he could not negotiate what he wanted with his uncle, according to the lawsuit. The lawsuit says David Simon used his control of the manager “to take by fiat what he could not get through negotiations” with his uncle. Of note is the HoldCo operating agreement’s removal of the preference rights originally granted to the plaintiffs and other preferred equity holders that was laid out in the SFG Co. operating agreement.

The plaintiffs argue that these actions were taken without SFG Manager seeking the consent of the SFG Co.’s other equity holders, violating the company’s operating agreement. They didn’t find out about the company’s dissolution until they received paperwork in the mail after it was completed, according to court documents.

The mailed documents included an information sheet that explained that the plaintiffs had been “automatically admitted” as members of HoldCo and that they “are considered to have agreed to and confirmed all terms” of the HoldCo operating agreement. The sheet said that plaintiffs are “subject to all the obligations of a Member under that agreement,” according to the lawsuit.

But the plaintiffs argue that they never saw or signed the new HoldCo operating agreement when SFG Manager automatically admitted them as members.

The HoldCo operating agreement also gives SFG Manager “unlimited discretion” to determine when company assets are sold to members and assignees and waives SFG Manager’s fiduciary duties to members, according to the complaint. The SFG Co. operating agreement previously stated that assets would be liquidated and paid to members and assignees within 90 days of dissolution.

In May, Herb Simon met Eli Simon to express his concerns about the continuation from SFG Co. to HoldCo. Eli declined his uncle’s request to restore the rights of all equity holders and said the restructuring was a valid transaction he planned to uphold, court documents state.

The plaintiffs are suing for breach of contract and of fiduciary duties. They’re asking the court to deem the restructuring invalid and to restore Melvin Simon & Associates as the manager of SFG Manager. They’re also seeking compensatory and punitive damages.

Aside from Herb Simon, plaintiffs include the Herbert Simon Revocable Trust, Melvin Simon & Associates, Simon Hollywood Developers Inc. and Bank of America (solely as the trustee of Bren’s Marital Trust).

The lawsuit names 17 defendants and nominal defendants, including SFG Manager LLC, and Jacqueline Simon as personal representative of the Estate of David E. Simon. Jacqueline Simon is David Simon’s widow and mother to his five children, including Eli Simon.

Nominal defendants include philanthropists Deborah Simon and Cynthia Simon-Skjodt, who are Melvin Simon’s daughters, and other members of David Simon’s family.

The case is The Herbert Simon Revocable Trust, Melvin Simon & Associates, Inc., Simon Hollywood Developers, Inc. v. SFG Manager, LLC, Jacqueline S. Simon, as personal representative of the Estate of David E. Simon et al, 49D01-2607-CE-042856.