Apollo scores victory over dissident investors
Apollo Global Management scored a victory over two dissident shareholders in its affiliated life insurance company Athene Holding when they withdraw New York lawsuits against the private equity firm under pressure from a Bermuda court.
The skirmish centred on a clause in Athene’s incorporation documents stipulating that certain disputes must be litigated in Bermuda, where it is registered. The case illustrates the legal obstacles facing aggrieved shareholders in the growing number of companies that have trimmed their tax bills by incorporating overseas, despite trading on the New York Stock Exchange and doing most of their business in the US.
“The corporate governance attributes of an offshore company can be on a net basis more costly than the tax advantages,” said Charles Elson, director of the corporate governance programme at the University of Delaware.
Apollo first came into conflict with an Athene shareholder in June, when the Illinois-based Central Laborers Pension Fund complained in a New York lawsuit that the private equity firm was using its outsize influence over Athene to perpetuate an “extravagantly expensive” asset management contract from which it earns $400m in annual fees. Apollo owns 9 per cent of Athene, the life insurance group it created in 2009, but controls 45 per cent of the voting shares.
Bermuda’s chief justice, Narinder Hargun, ordered a halt to the Central Laborers lawsuit on July 5, after Athene argued that the case hinged on the conduct of its directors. The “exclusive forum selection clause” in Athene’s bylaws states that such issues must be resolved in Bermuda courts.
Two weeks later, a public pension fund in Pennsylvania commenced a separate New York action, which attempted to circumvent the Bermuda ruling by avoiding reference to the directors’ conduct.
The Cambria County Employees Retirement System also asked the New York court for an order preventing Athene “from attempting to interfere with” the lawsuit.
But before Judge Peter Sherwood could issue a ruling in New York, Athene persuaded Mr Hargun to order a halt to the second lawsuit as well.
Last week, both Cambria and Central Laborers withdrew their lawsuits, citing the Bermuda injunctions, meaning New York courts will have no opportunity to rule on the claims. US courts often respect foreign legal judgments in civil matters, legal experts say, even if there is no law requiring them to do so.
Apollo said the claims were “completely without merit and would fail in any jurisdiction,” and called the dismissals “a routine application of Athene’s bylaws, which clearly provide that Bermuda is the proper forum for litigation”. It added: “These cases, brought by the same law firm representing different plaintiffs, were ultimately nothing more than a failed attempt to forum-shop.”
The plaintiffs in the Apollo lawsuits are free to pursue their complaints in a Bermuda court. But they would have to finance the litigation themselves: unlike the US, the island territory does not allow plaintiff’s lawyers to fund lawsuits against deep-pocketed opponents by charging contingent fees.
The ruling appeared to vindicate a warning in Athene’s 2016 initial public offering prospectus, which stated that US-based shareholders “may have more difficulty in protecting their interests than US persons who are shareholders of a US corporation”. Compared with the US, Bermuda law offers limited opportunities for shareholders to bring lawsuits, and hits the losing side with a portion of the winner’s costs, the document added.
Legal experts expect the same fate to befall aggrieved investors in other foreign-registered companies who seek to air their grievances in US courts.
“With ‘exclusive forum bylaws’ funnelling litigation to foreign jurisdictions, shareholders should be concerned that companies can get a ‘hometown advantage’”, Mr Elson said.