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EXHIBIT 99.4
COMMONWEALTH OF MASSACHUSETTS
MIDDLESEX, ss. SUPERIOR COURT
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]
SENIOR HOUSING ]
PROPERTIES TRUST and ]
FIVE STAR QUALITY CARE, INC., ] Civil Action No. 02-5020
]
Plaintiffs, ]
]
v. ]
]
MARRIOTT SENIOR ]
LIVING SERVICES, INC., and ] JURY TRIAL DEMANDED
MARRIOTT INTERNATIONAL, INC., ]
]
Defendants. ]
]
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COMPLAINT FOR DECLARATORY RELIEF
Plaintiffs Senior Housing Properties Trust ("SNH") and Five
Star Quality Care, Inc. ("FVE"), by their undersigned attorneys, bring this
action against defendants Marriott Senior Living Services, Inc. ("MSLS") and
Marriott International, Inc. ("Marriott"), and allege upon knowledge with
respect to themselves and their own acts and upon information and belief with
respect to all other matters as follows:
NATURE OF ACTION
1. SNH is a real estate investment trust that, together with
its wholly owned subsidiaries, owns and invests in senior living communities,
specialty hospital properties, nursing homes and other similar properties
throughout the United States.
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2. FVE, together with its wholly owned subsidiaries, owns
and operates senior living communities, assisted living facilities, nursing
homes and other similar properties throughout the United States.
3. MSLS, a subsidiary of Marriott, operates senior living
communities and other similar properties throughout the United States. Marriott
is a hospitality corporation that operates lodging properties throughout the
world. Marriott owns 100% of MSLS stock and is the owner of the Proprietary
Marks as described herein.
4. SNH owns 31 senior living communities (the "Communities")
that are leased to FVE. (In referring to SNH's and FVE's interests in the
Communities, they will be referred to at times in this Complaint as "SNH/FVE").
The Communities are full-service living environments for senior citizens,
providing a wide range of levels of care and service along a continuum of care
for residents. The Communities are managed by MSLS and are located throughout
the United States, including a Community in Winchester, Massachusetts.
5. All of the Communities use the Marriott name. The Marriott
name is well-known throughout the United States and worldwide. The benefit of
Marriott's experience and services, use of the Marriott name and compliance with
the "Marriott Standards" of quality (as that term is defined in the Agreements
pursuant to which MSLS manages the Communities) was an inducement to engage MSLS
as the manager/operator of the Communities and is advantageous to SNH/FVE.
6. Marriott has publicly announced that it intends to exit
the business of owning and operating senior living communities.
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7. Marriott and MSLS (the "Marriott Parties") have represented
to SNH/FVE that Marriott is in the process of negotiating a sale of MSLS,
pursuant to which an unrelated company will buy the MSLS stock. Further, the
Marriott Parties have represented that the principal company Marriott is in
negotiations with is Sunrise Assisted Living, Inc. ("Sunrise").
8. Sunrise has significantly less experience and expertise
than the Marriott Parties and lacks the capacity to perform the duties and
responsibilities currently performed by the Marriott Parties at the level and in
the manner required by the controlling contracts. Among other things, while
Sunrise operates assisted living communities, it lacks experience and expertise
in operating communities that provide a continuum of care and, in particular,
lacks experience and expertise in operating communities offering skilled nursing
units. Such skilled nursing units represent a significant portion of the
Communities. Sunrise also lacks the financial capacity to perform the duties and
responsibilities currently performed by the Marriott Parties. Sunrise's lack of
financial capacity is apparent from, among other things, the fact that Sunrise
has "off balance sheet" liabilities which exceed its publicly reported net worth
and its practice of reporting income based, in part, upon sales of assets
(instead of operating results) and which excludes the full impact of losses
sustained by "off balance sheet special purpose entities" (some of which are
managed by Sunrise directors).
9. Moreover, the Sunrise name is decidedly inferior in
strength and value as compared to the Marriott name. The Marriott Parties have
represented that the Communities will not be permitted to use the Marriott name
following the sale of MSLS. Instead, the Communities will be forced to use a
different brand name, which will be selected by the company that purchases the
MSLS stock.
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10. The operations of the Communities will be jeopardized and
SNH/FVE will be injured by the takeover of MSLS by a company lacking capacity
and by the replacement of the Marriott name with another name.
11. Plaintiffs seek a judgment declaring that (i) the
Communities are contractually entitled to use the Marriott name following a sale
of MSLS stock by Marriott, (ii) MSLS will be in breach of its contracts with
SNH/FVE if the Communities are forced to cease using the Marriott name following
a sale of MSLS stock by Marriott, and (iii) the Marriott Parties may not
transfer their interests in the Agreements to Sunrise without SNH/FVE's consent.
PARTIES
12. Plaintiff SNH is a real estate investment trust organized
under the laws of Maryland with a principal place of business at 400 Centre
Street, Newton, Massachusetts 02458.
13. Plaintiff FVE is a corporation organized under the laws of
Maryland with a principal place of business at 400 Centre Street, Newton,
Massachusetts 02458.
14. Defendant MSLS is a corporation organized under the laws
of Delaware with a principal place of business at 10400 Fernwood Road, Bethesda,
Maryland 20817.
15. Defendant Marriott is a corporation organized under the
laws of Delaware with a principal place of business at 10400 Fernwood Road,
Bethesda, Maryland 20817.
JURISDICTION AND VENUE
16. This Court has jurisdiction over defendants pursuant to
Mass. Gen. L. ch. 223A, Section 3.
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17. Venue is proper in Middlesex County pursuant to Mass.
Gen. L. ch. 223, Section 8, because plaintiffs SNH and FVE have principal places
of business in this county.
FACTS
THE COMMUNITIES HAVE CONTRACTUAL RIGHTS TO USE THE MARRIOTT NAME
18. The contractual relationship between SNH/FVE and MSLS is
governed by the Operating and/or Management Agreements for the Communities, as
amended (collectively, the "Operating Agreements").
19. SNH, FVE, MSLS, and Marriott were each signatories to a
December 13, 2001, Estoppel, Consent, Amendment and Agreement (the "Estoppel
Agreement"), pursuant to which the Marriott Parties provided SNH and FVE certain
assurances with respect to the Operating Agreements and pursuant to which SNH,
FVE and the Marriott Parties amended certain provisions of the Operating
Agreements. The statements and agreements of the Marriott Parties in the
Estoppel Agreement were a material inducement to SNH and FVE in purchasing the
Communities.
20. The Marriott name is used to identify communities in the
Marriott Retirement Community System and is a "Proprietary Mark" pursuant to
Section 1.01 of the Operating Agreements.
21. The Marriott name is currently used to identify the
Communities. The continual use of the Marriott name by the Communities is
protected by the Operating Agreements and is a central purpose to the Operating
Agreements. Indeed, Recital E on the first page of the Operating Agreements
states:
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Owner desires to assure that it will have the benefit of
Operator's experience, services and PROPRIETARY MARKS in
establishing and enhancing and maintaining a successful
Retirement Community.
Operating Agreements, Recital E (emphasis added).
22. MSLS is required by Section 2.01 of the Operating
Agreements to operate the Communities "in accordance with Marriott Standards."
Further, pursuant to Section 2.03, MSLS is also required to conduct its
management functions "[i]n accordance with Marriott Standards." Marriott
Standards are defined in Section 1.01 of the Operating Agreements as follows:
"MARRIOTT STANDARDS" means from time to time both the
operational standards (for example staffing levels, accounting
and fiscal management, resident care and health care policies
and procedures, accounting and financial reporting policies
and procedures) and the physical standards (for example,
quality of FF&E, frequency of FF&E replacement) that are then
generally and consistently (but not necessarily, absolutely or
without exception) applied at or to retirement communities in
the MARRIOTT RETIREMENT COMMUNITY SYSTEM which are of
comparable size, age and market orientation as the Retirement
Community, (provided, however, that the Marriott Standards
shall in no event be lower than (i) what is required, from
time-to-time during the Term, by Legal Requirements, or (ii)
the operational and physical standards, as of the date in
question, of comparable retirement communities in the quality
segment of the retirement communities industry in the state in
which the Retirement Community is located).
Operating Agreements, Section 1.01 (emphasis added).
23. The definition of Marriott Standards refers to the
Marriott Retirement Community System. The Communities are part of the Marriott
Retirement Community System
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and are operated as such by MSLS. Section 1.01 of the Operating Agreements
defines "Marriott Retirement Community System" as follows:
"MARRIOTT RETIREMENT COMMUNITY SYSTEM" means at any particular
time the entire system or group of full service (that is
consisting of both independent living and health care
accommodations and services) retirement communities then owned
and/or operated or managed by Operator (or one or more of its
Affiliates), UNDER THE "MARRIOTT" NAME.
Operating Agreements, Section 1.01 (emphasis added).
24. The only way for the Communities to cease being part of
the Marriott Retirement Community System is through a transfer with SNH/FVE's
consent or pursuant to a valid assignment that satisfies all of the restrictions
set forth in the Non-Assignment Clause.
THE OPERATING AGREEMENTS ONLY PERMIT
AN OPERATOR TO CHANGE THE MARRIOTT NAME FOLLOWING
AN ASSIGNMENT OR TRANSFER THAT COMPLIES WITH SECTION 17.01
25. Certain provisions of the Estoppel Agreement addressed
concerns by SNH/FVE that the Marriott parties would attempt to exit the senior
living community business.
26. The Estoppel Agreement expressly amended Section 17.01 of
the Operating Agreements (the "Non-Assignment Clause"). The Non-Assignment
Clause, as amended, places several restrictions on MSLS's right to assign its
interest in the Operating Agreements and protects SNH/FVE from having a below
standard operator take over operation of the Communities. The Non-Assignment
Clause states, in pertinent part:
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Operator shall not assign or transfer its interest in this
Agreement without the prior written consent of Owner, such
consent to be granted or withheld in Owner's sole discretion;
provided, however, that Operator shall have the right without
such consent, (but following written notice to Owner), to (1)
assign its interest in this Agreement to an unrelated third
party operator provided that the following conditions are met:
(a) the third party operator is known in the community as a
reputable operator of retirement communities, (b) the third
party operator is in good standing, authorized to do business
in the relevant state, and assumes the Operator obligations by
an appropriate writing (upon delivery of which, assignor is
released from all further obligations under the Agreement);
(c) the third party operator has the capacity to perform the
duties and responsibilities of Operator under this Agreement;
and (d) the assignment is part of a transaction or series of
transactions by the Marriott Parties to dispose of all or
substantially all of the assets of MSLS (IN THE EVENT OF SUCH
AN ASSIGNMENT, THE OPERATOR, AT ITS EXPENSE MAY REMOVE ANY
SIGNS OR SIMILAR ITEMS WHICH CONTAIN THE PROPRIETARY MARKS
WHICH INCLUDE THE WORD "MARRIOTT" IN THEM, AND THE RETIREMENT
COMMUNITY MAY BE OPERATED UNDER THE ASSIGNEES PROPRIETARY
MARKS)....
Operating Agreements, Section 17.01 (emphasis added).
27. The Non-Assignment Clause provides limited conditions
under which an assignment of the Operating Agreements may be accomplished and
the communities may be renamed without the Marriott name. This limited exception
only applies in the case of an assignment where the assignment satisfies
conditions (a) through (d). Then, and only then, can a transfer be accomplished
regardless of the acquiescence of SNH and FVE and the assignee cease using the
Marriott name.
28. The Marriott Parties have represented that a sale of MSLS
stock is not an assignment and have further taken the position that their
transfer of the ownership of the stock of MSLS need not comply with the express
conditions in the Non-Assignment Clause with respect to assignments.
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29. The Non-Assignment Clause also expressly requires
SNH/FVE's consent to any transfer of MSLS's interests in the Operating
Agreements and further gives SNH/FVE the absolute right -- in its "sole
discretion" -- to refuse to consent to any such transfer. The Marriott Parties
have taken the position that SNH/FVE have no consent rights whatsoever in
connection with the proposed transfer of MSLS to Sunrise. They assert that there
will be no change in the Operator because both before and after the transfer the
Operator will be a newly renamed MSLS.
30. Though the Marriott Parties seek to deny, nullify, or
entirely avoid the important protections bargained for in Section 17.01, they
may not do so as a matter of law. Indeed, to the extent that the anticipated
transfer of MSLS's stock to Sunrise is not viewed as a transfer or assignment
subject to the protections of Section 17.01 because both before and after the
stock transfer the Operator will be the company now known as MSLS , then, by
operation of law, there can be no change of Operators: MSLS will continue being
the Operator pursuant to the Operating Agreements. The only change will be that
MSLS's stock is owned by a company other than Marriott. MSLS will therefore
continue to have the same duties and obligations, including the contractual
obligation to use the Marriott name, both before and after any MSLS stock sale.
THE MARRIOTT PARTIES ADVANCED A SPECIOUS
CONTRACTUAL INTERPRETATION REGARDING THE DEFINITION OF "PROPRIETARY MARKS"
31. The Marriott Parties have taken the position that the
definition of "Proprietary Marks" in Section 1.01 of the Operating Agreements
allows MSLS to cease using the Marriott name following a transfer of MSLS stock.
32. The definition of Proprietary Marks states, in pertinent
part:
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"PROPRIETARY MARKS" means all trademarks, trade names,
symbols, logos, slogans, designs, insignia, emblems, devices,
service marks and distinctive designs of buildings and signs,
or combinations thereof, which are used to identify retirement
communities in the Marriott Retirement Community System OR OF
ANY OTHER OPERATOR UNDER THIS AGREEMENT. The term "Proprietary
Marks" shall also include all trade names, trademarks,
symbols, logos, designs, etc., which are used in connection
with the operation of the Retirement Community during the
Term. The term "Proprietary Marks" shall include all present
and future Proprietary Marks, whether they are now or
hereafter owned by Operator or any of its Affiliates, and
whether or not they are registered under the laws of the
United States or any other country. The names "Marriott",
"Forum" and "Marriott Retirement Community", and any of the
foregoing used in conjunction with other words or names, are
examples of Proprietary Marks.
Operating Agreements, Section 1.01. (emphasis in original)
33. The Marriott Parties have also taken the position that the
boldface text allows MSLS to use a name other than the Marriott name. This
specious position ignores the plain wording of the Operating Agreements and the
bargained-for protections for SNH/FVE in Section 17.01. Indeed, the only way to
become an "Operator under this Agreement" is to either be (i) MSLS or (ii) an
assignee or transferee of MSLS pursuant to Section 17.01.
MARRIOTT PLANS TO SELL MSLS TO SUNRISE
AND PREVENT THE COMMUNITIES FROM USING THE MARRIOTT NAME
34. The disagreement between the Marriott Parties and SNH/FVE
regarding use of the Marriott name is not in the abstract, but directly relates
to an impending sale of MSLS's stock to Sunrise.
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35. The Marriott Parties have represented that Marriott is in
negotiations to sell MSLS to Sunrise and plans to structure the transaction as a
sale of the MSLS stock. The Marriott Parties have further advised SNH/FVE that
SNH/FVE have no consent rights whatsoever and that the protections afforded
SNH/FVE by Section 17.01 are not implicated by the proposed transaction.
36. In short, the Marriott Parties have represented that the
Communities will no longer be able to use the Marriott name following the sale
of MSLS to Sunrise, and that SNH/FVE have no contractual sights whatsoever with
respect to the identity of the new entity that will become the long term
Operator of its 31 Communities.
37. Sunrise has significantly less experience and expertise
than the Marriott Parties in operating senior living communities comparable to
the Communities. Further, Sunrise lacks the capacity to perform the duties and
responsibilities currently performed by MSLS.
38. Moreover, the Sunrise name is decidedly inferior in
strength and value as compared to the Marriott name.
39. The replacement of the Marriott name with the Sunrise name
will cause SNH/FVE's interests in the Communities to lose value.
COUNT I
(CLAIM FOR DECLARATORY RELIEF - MASS. GEN. L. CH. 231A, SECTIONS 1 AND 2)
40. Plaintiffs repeat and reallege all allegations in all of
the above-numbered paragraphs as if fully repeated herein.
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41. Actual controversies have arisen and now exist between
plaintiffs and defendants concerning their respective rights and obligations
regarding the Communities' use of the Marriott name pursuant to the Operating
Agreements.
42. Plaintiffs require a judicial determination of the
respective rights and obligations of plaintiffs and defendants with respect to
defendants' stated intentions to sell MSLS and subsequently forbid the
Communities from using the Marriott name. Plaintiffs request declarations that
(i) the Communities are contractually entitled to use the Marriott name
following a sale of MSLS stock by Marriott, (ii) MSLS will be in breach of its
contracts with SNH/FVE if the Communities are forced to cease using the Marriott
name following a sale of MSLS stock by Marriott, and (iii) the Marriott Parties
may not transfer their interest in the Agreements to Sunrise without SNH/FVE's
consent.
43. These declarations will permanently resolve this
controversy.
44. Such declarations are necessary and appropriate at this
time in order that plaintiffs may ascertain their rights with respect to
defendants.
WHEREFORE, plaintiffs pray for judgment against defendants as
follows:
A. For a declaration that the Communities are
contractually entitled to use the Marriott name following a sale of MSLS stock
by Marriott;
B. For a declaration that MSLS will be in breach of its
contracts with SNH/FVE if the Communities are forced to cease using the
Marriott name following a sale of MSLS stock by Marriott;
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C. For a declaration that the Marriott Parties may not
transfer their interests in the Agreements to Sunrise without SNH/FVE's consent.
D. For an Order awarding plaintiffs attorneys' fees and
costs incurred herein; and
E. For such other and further relief as the Court deems
just and proper.
JURY TRIAL DEMAND
Plaintiffs respectfully request trial by jury on all claims so
triable.
Dated: November 27, 2002 Respectfully submitted,
Boston, Massachusetts
/s/ James R. Carroll /s/ Craig E. Leen
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James R. Carroll (BBO #554426)
Craig E. Leen (BBO #651083)
SKADDEN, ARPS, SLATE
MEAGHER & FLOM LLP
One Beacon Street
Boston, Massachusetts 02108
(617) 573-4800
Counsel for Plaintiffs
Senior Housing Properties Trust
And Five Star Quality Care, Inc.