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EXHIBIT 99.5
IN THE CIRCUIT COURT FOR MONTGOMERY COUNTY, MARYLAND
- ---------------------------------------------------------)
)
MARRIOTT INTERNATIONAL, INC., a corporation )
organized under the laws of Delaware, )
10400 Fernwood Road )
Bethesda, MD 20817 )
and )
)
MARRIOTT SENIOR LIVING SERVICES, INC., a )
corporation organized under the laws of Delaware, )
10400 Fernwood Road )
Bethesda, MD 20817 )
Plaintiffs, ) Civil No. __________
)
v. )
)
SENIOR HOUSING PROPERTIES TRUST, a Maryland )
real estate investment trust, )
400 Centre Street )
Newton, MA 02458 )
)
Serve: Registered Agent, James J. Hanks, Jr. )
Ballard, Spahr, Andrews & Ingersoll, LLP )
300 East Lombard Street )
Baltimore, MD 21202 )
and )
)
FIVE STAR QUALITY CARE, INC., a corporation )
organized under the laws of Maryland, )
400 Centre Street )
Newton, MA 02458 )
)
Serve: Registered Agent, James J. Hanks, Jr. )
Ballard, Spahr, Andrews & Ingersoll, LLP )
300 East Lombard Street )
Baltimore, MD 21202 )
)
Defendants. )
)
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VERIFIED COMPLAINT
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Plaintiffs Marriott International, Inc. ("Marriott") and Marriott
Senior Living Services, Inc. ("SLS") allege for their Complaint against
Defendants Senior Housing Properties Trust ("SNH") and Five Star Quality Care,
Inc. ("FVE"), as follows:
INTRODUCTION
1. The Defendants own certain senior living centers that are managed by
SLS. The Defendants are now attempting to unjustly terminate their long-term
management services contracts with SLS, less than one year after acquiring them.
2. SLS operates 129 senior living community centers across the United
States. These include 31 properties owned by the Defendants (the "Communities"),
the management of which is governed by a set of Operating Agreements between the
parties (the "Operating Agreements").
3. The Operating Agreements recognize the unique nature of the
management services provided by SLS and the irreparable injury to SLS that would
result from an improper termination. Importantly, a party's ability to terminate
the Operating Agreements in the event of default is limited to instances of a
material breach under the agreements, which has not occurred in this instance.
Despite these limitations, the Defendants have expressed a clear intent to
terminate the Operating Agreements under the pretext of certain claimed
"defaults" by SLS in its management of the Communities.
4. Contrary to the Defendants' assertions, SLS is not in default - much
less material breach - of the Operating Agreements. Any termination of the
Operating Agreements, therefore, would be improper and would itself constitute a
breach by the Defendants. Although the
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Operating Agreements contain procedures for noticing claimed defaults and
allowing a party a specified amount of time in which to cure, the Defendants
have expressed their intent to terminate the Operating Agreements upon
expiration of the contractual cure period irrespective of any cure. The
Defendants' conduct thus constitutes an anticipatory breach of the Operating
Agreements.
5. Under the Operating Agreements, the Defendants expressly agreed that
SLS would be entitled to an injunction prohibiting the Defendants' wrongful
termination, as well as a remedy ordering specific performance of the
Defendants' contractual obligations.
6. In light of the Defendants' clear and expressed intent to terminate
the Operating Agreements and their anticipatory breach, the Plaintiffs have
brought this action seeking declaratory and injunctive relief. Plaintiffs seek a
declaration from this Court that SLS is neither in default nor material breach
of the Operating Agreements, and that Defendants have anticipatorily breached
the Operating Agreements. Plaintiffs also seek an order enjoining the Defendants
from repudiating, terminating or purporting to terminate the Operating
Agreements, or from evicting or attempting to evict SLS as operator from the
Communities. Finally, the Plaintiffs seek money damages, attorneys' fees and
such other equitable and legal relief as the Court deems appropriate.
THE PARTIES
7. Marriott is a publicly traded corporation (NYSE symbol = MAR)
organized under the laws of Delaware, with its principal place of business
located at 10400 Fernwood Road, Bethesda, Maryland 20817.
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8. SLS is a corporation organized under the laws of Delaware, with its
principal place of business located at 10400 Fernwood Road, Bethesda, Maryland
20817. SLS is a wholly owned subsidiary of Marriott. SLS is in the business of
operating senior living communities for property owners and is a recognized
leader in that industry.
9. SNH is a publicly traded Maryland real estate investment trust (NYSE
symbol = SNH), with its principal place of business located at 400 Centre
Street, Newton, Massachusetts 02458.
10. FVE is a publicly traded corporation (NYSE symbol = FVE) organized
under the laws of Maryland, with its principal place of business located at 400
Centre Street, Newton, Massachusetts 02458.
JURISDICTION, VENUE, AND CHOICE OF LAW
11. This Court has subject matter jurisdiction over this action
pursuant to MD. CODE ANN., CTS. & JUD. PROC. Sections 1-501 (Maryland Circuit
Courts) and 3-403 (Maryland Uniform Declaratory Judgment Act) (2002).
12. This Court has personal jurisdiction over the parties pursuant to
MD. CODE ANN., CTS. & JUD. PROC. Sections 6-102 and 6-103 (2002). Marriott and
SLS maintain their principal places of business within Maryland and transact
business in Maryland. SNH and FVE are organized under the laws of Maryland and
transact business in Maryland.
13. This Court is a proper venue for this action pursuant to MD. CODE
ANN., CTS. & JUD. PROC. Sections 6-201 and 6-202(3) (2002), as SNH and FVE do
not maintain their principal places of business within Maryland and the
Plaintiffs reside in Montgomery County.
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14. Plaintiffs' claims are governed by Maryland law, as the parties to
the Operating Agreements expressly agreed that Maryland law would apply to any
disputes under the agreements.
FACTUAL BACKGROUND
THE OPERATING AGREEMENTS AND THE RELATIONSHIP BETWEEN THE PARTIES
15. Defendant SNH owns, and leases to Defendant FVE, 31 Communities
located across the United States. SLS manages the Communities pursuant to 31
Operating Agreements, one for each Community.
16. SLS entered into the Operating Agreements with the owners of the
Communities between 1995 and 1998.
17. On or about December 13, 2001, SNH directly or indirectly acquired
all of the outstanding common stock of the owners of the Communities. Subsequent
to that transaction, SNH dividended all of the shares of FVE to its shareholders
and then leased to FVE all of the Communities. FVE assumed the obligations of
the "Owner" under the Operating Agreements.
18. On or about December 13, 2001, in connection with SNH's acquisition
of the Communities, SLS, SNH, and FVE, along with related and other entities,
executed an Estoppel, Consent, Amendment and Agreement (the "Estoppel and
Consent Agreement"). The Estoppel and Consent Agreement: (a) contains certain
certifications and consents related to SNH and its related entities' acquisition
of the Communities; (b) assigns the obligations of "Owner" under the
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Operating Agreements to FVE and its related entities; and (c) amends certain
provisions of the Operating Agreements.
19. For purposes relevant to this lawsuit, the Estoppel and Consent
Agreement together with the Operating Agreements govern the relationship and
obligations between SLS and the Defendants. Of the 31 Operating Agreements, 30
are substantively identical with respect to their terms and provisions,
including all of the terms and provisions that are at issue in this action.
20. Article 16 of the Operating Agreements addresses defaults,
termination, and SLS' right to specific performance and injunctive relief.
Section 16.02 provides in relevant part applicable to this action that in the
event of a "Default" the non-defaulting party may provide the defaulting party
with a written notice of the alleged "Default" and demand that the latter cure
the alleged "Default" within a specified time period. If an alleged "Default" is
not timely cured, it will be deemed an "Event of Default," thereby triggering
certain limited remedies under the Operating Agreements.
21. Section 16.03 of the Operating Agreements sets forth those limited
remedies and specifically those limited circumstances under which a party may
terminate an Operating Agreement. Section 16.03 provides in relevant part:
A. Upon the occurrence of an Event of Default, the non-defaulting party
shall have the right to pursue any one or more of the following courses
of action: (i) in the event of a MATERIAL BREACH by the defaulting
party of its obligations under this Agreement, to terminate this
Agreement by written notice to the defaulting party, which Termination
shall be effective as of the effective date which is set forth in said
notice, provided that said effective date shall be at least thirty (30)
Days after the date of said notice; provided that if the defaulting
party is the employer of all or a substantial portion of the employees
at the Retirement Community, the foregoing period of thirty (30) Days
shall be extended to seventy five (75) Days (or such longer period of
time as may be necessary under
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applicable federal, state or local laws pertaining to termination of
employment) . . . . (emphasis added).
The Operating Agreements thus limit a party's right to terminate an Operating
Agreement to situations where an "Event of Default" rises to the level of a
"material breach."
22. The parties further acknowledged in the Operating Agreements that
improper termination by the Defendants, the Owners, would allow SLS, the
Operator, to obtain specific performance and injunctive relief. Section 16.04 of
the Operating Agreements, entitled "Operator's Right to Specific Performance for
Owner's Wrongful Termination," provides in relevant part:
Owner hereby acknowledges that (i) Operator has an interest in this
Agreement beyond the fees that Operator will earn pursuant to the
provisions of this Agreement, (ii) the termination of this Agreement by
Owner when Owner is not entitled to terminate this Agreement pursuant
to the provisions of this Agreement will be injurious to Operator's
business conducted beyond Owner's Retirement Community, and will damage
Owner's Proprietary Marks, (iii) Operator's Proprietary Marks are
unique, Operator's exclusive rights of possession under Section 2.02B
are unique, the Retirement Community is unique and Operator is entitled
to an exclusive license to operate Operator's business at the
Retirement Community and to promote Operator's Proprietary Marks at the
Retirement Community, which license is irrevocable except pursuant to
the express provisions of this Agreement, (iv) it would be impossible
to calculate the damages that Operator would sustain if Owner
terminated this Agreement when Owner is not entitled to terminate this
Agreement pursuant to the provisions of this Agreement, and (v) the
remedy of specific performance of Owner's obligations under this
Agreement is fair, equitable and practicable. Accordingly, Owner agrees
that (i) Owner shall not exercise any legal power that it may have to
breach this Agreement by terminating, or purporting to terminate, this
Agreement, except where this Agreement (including without limitation
Sections 4.03 [performance termination], Section 4.04 [owner's
termination option] and Article 16) expressly permits such termination,
and Owner hereby surrenders and releases any such legal power, and (ii)
OWNER CONSENTS TO THE ISSUANCE BY A COURT OF COMPETENT JURISDICTION OF
INJUNCTIVE RELIEF PROHIBITING OWNER FROM TERMINATING, OR PURPORTING TO
TERMINATE, THIS AGREEMENT OR FROM EVICTING OPERATOR FROM THE RETIREMENT
COMMUNITY, EXCEPT WHERE THIS AGREEMENT (INCLUDING WITHOUT LIMITATION
SECTIONS 4.03, 4.04 AND ARTICLE 16) EXPRESSLY PERMITS SUCH TERMINATION,
AND OWNER CONSENTS TO THE GRANT BY A COURT OF COMPETENT JURISDICTION OF
SPECIFIC PERFORMANCE OF THE OBLIGATIONS OF OWNER UNDER THIS AGREEMENT.
Nothing set forth in this Section 16.04
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modifies any right of Owner to terminate this Agreement as expressly
set forth in this Agreement (including without limitation Sections
4.03, 4.04 and Article 16). (emphasis added).
23. During negotiations with the Defendants regarding the acquisition
of the Communities in December 2001, Plaintiffs informed the Defendants of
Marriott's possible sale of SLS. On or about July 11, 2002, Marriott announced
its intent to explore strategic alternatives for SLS, including the possibility
of selling the company, and solicited bids from interested parties.
24. On or about September 17, 2002, the Defendants submitted a bid to
purchase SLS. Marriott rejected that bid as being inadequate. Marriott is
currently considering several offers for SLS, and is currently negotiating with
two potential buyers.
25. The Defendants have used the potential sale of SLS as an
opportunity to try to extract unwarranted concessions from Plaintiffs under the
Operating Agreements. Almost immediately after learning that their bid for SLS
had been rejected, the Defendants began to characterize certain minor
operational issues at the Communities as "breaches" or "defaults" under the
Operating Agreements. The Defendants also stated - without any basis under the
Operating Agreements or the Estoppel and Consent Agreement - that the
Defendants' consent would somehow be needed before the properties could be
"re-flagged" with the proprietary marks of the successor to SLS.
THE NOTICE OF DEFAULT AND THE DEFENDANTS' INTENT TO TERMINATE THE OPERATING
AGREEMENTS
26. Beginning in October 2002, notwithstanding the express limitations
on termination contained in the Operating Agreements, the Defendants began to
threaten
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termination of the Operating Agreements in the event that SLS failed to comply
with their demands. For example, an October 11, 2002 letter signed by the
Presidents of SNH and FVE states that "[o]ur attempts to resolve the real
problems in [SLS'] operations by negotiation should not be mistaken to evidence
that we are unwilling or incapable of taking more forceful actions to terminate
the [Operating Agreements] or otherwise."
27. Upon receipt of the Defendants' October 11, 2002 letter, SLS
reviewed the issues raised therein and began preparing a comprehensive response.
None of the minor matters raised constitute a default, much less a material
breach by SLS.
28. During this same time period, the Defendants also made public
statements to persons involved in the operation of the Communities to the effect
that, regardless of any attempt by SLS to cure the alleged defaults, the
Defendants intend to terminate the Operating Agreements and operate the
Communities themselves. Further, Defendants presaged their plan to terminate the
Operating Agreements in SNH's recent Form 10-Q, where it announced with respect
to the 31 Communities that "we do not believe that CANCELLATION of the Marriott
management contracts would materially jeopardize our ability to collect rent for
these communities" (emphasis added). FVE's recent Form 10-Q contains similar
language.
29. On November 13, 2002, as SLS was finalizing its response to the
Defendants' October 11, 2002 letter, SLS received a purported "Notice of
Default" from the Defendants' counsel. That letter states that "[SLS] is in
material breach of the [Operating] Agreements," lists the duties and obligations
that the Defendants contend SLS has breached, and demands that SLS "cure" the
defaults "within the contractually specified time periods." The letter also
notes that
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"SNH/FVE does not waive its right to claim that either one, some, or all of
these Defaults are incurable."
30. Under one of the default provisions alleged by Defendants
(Section 16.01(E)), SLS would have only 10 business days, or until November 27,
2002 to cure (if cure was even required) after which Defendants could attempt to
terminate.
31. On November 27, 2002, the parties' principals, along with counsel,
met in an unsuccessful attempt to resolve their instant dispute.
CAUSES OF ACTION
COUNT I - DECLARATORY RELIEF
32. Plaintiffs incorporate by reference all preceding paragraphs of
this Complaint as if set forth fully herein, and make the following additional
allegations.
33. SLS is a party to, and has a contract interest in, the written
Operating Agreements between SLS and the Defendants.
34. Notwithstanding SLS' detailed responses and information provided in
response to the Defendants' requests, the Defendants have alleged that SLS is in
default and material breach of the Operating Agreements, and have provided SLS
with a purported "Notice of Default" containing those allegations.
35. SLS is not in default nor is it in material breach of the Operating
Agreements.
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36. Even in the event that SLS were in default under the Operating
Agreements (which Plaintiffs deny), any such default does not rise to the level
of a "material breach" justifying termination under the Operating Agreements.
37. Upon information and belief, the Defendants have contrived their
allegations of SLS' default and material breach in bad faith as a pretext for
terminating the Operating Agreements.
38. As acknowledged under Section 16.04 of the Operating Agreements,
such improper termination will cause SLS irreparable harm for which money
damages will not provide an adequate remedy.
39. SLS has denied in correspondence with the Defendants, and continues
to deny, that it is in default or material breach under the Operating
Agreements.
40. The Defendants' actions thus have created an actual and justiciable
controversy regarding SLS' compliance with the Operating Agreements and the
Defendants' ability to terminate the Operating Agreements.
41. Accordingly, Plaintiffs seek a declaration from this Court,
pursuant to MD. CODE ANN., CTS. & JUD. PROC. Sections 3-401 (2002), ET SEQ.,
stating that: (i) SLS is not in default under the Operating Agreements; (ii) SLS
is not in material breach of the Operating Agreements; (iii) the Defendants may
not repudiate, terminate or purport to terminate the Operating Agreements; and
(iv) the Defendants may not evict SLS from the Communities.
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42. Plaintiffs further seek an injunction from this Court preserving
the status quo and prohibiting the Defendants from repudiating, terminating or
purporting to terminate the Operating Agreements, or from evicting or attempting
to evict SLS from the Communities.
43. Plaintiffs requests such other and further legal and equitable
relief, including but not limited to its actual and consequential damages,
attorneys' fees and costs, suffered as a result of the Defendants' actions in
amounts to be proven at trial, as the Court may deem appropriate.
COUNT II -- ANTICIPATORY BREACH / SPECIFIC PERFORMANCE
44. Plaintiffs incorporate by reference all preceding paragraphs of
this Complaint as if set forth fully herein, and make the following additional
allegations.
45. Any attempt by the Defendants to repudiate, terminate or purport to
terminate the Operating Agreements, or to evict or attempt to evict SLS from the
Communities, in the absence of a material breach by SLS will constitute a breach
by the Defendants of the Operating Agreements.
46. The Defendants, through their numerous statements and actions, have
expressed their clear intent to terminate the Operating Agreements upon the
expiration of the "cure period" set forth therein.
47. As SLS is not in default under the Operating Agreements, there is
no "cure" that might be accomplished or condition that might be met to prevent
the Defendants' intended termination of the Operating Agreements.
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48. The Defendants have expressed their unconditional and definite
intent to terminate the Operating Agreements regardless of any attempted "cure"
by SLS of the alleged defaults set forth in the Defendants' November 13, 2002
"Notice of Default."
49. As a result of their stated intent of terminating the Operating
Agreements upon expiration of the "cure period" set forth in the Defendants'
November 13, 2002 "Notice of Default," the Defendants have repudiated the
Operating Agreements and, therefore, their actions and statements constitute
anticipatory breach of contract for which SLS is entitled to immediate relief.
50. Under Section 16.04 of the Operating Agreements, SLS is entitled -
and the Defendants have consented - to specific performance of the Operating
Agreements, as well as an injunction prohibiting the Defendants from
repudiating, terminating or purporting to terminate the Operating Agreements, or
from evicting SLS from the Communities.
51. Accordingly, Plaintiffs seek a declaration from this Court,
pursuant to MD. CODE ANN., CTS. & JUD. PROC. Sections 3-401 (2002), ET SEQ.,
that the Defendants have anticipatorily breached the Operating Agreements, and a
declaration ordering the remedy of specific performance.
52. Plaintiffs further seek an injunction from this Court preserving
the status quo and prohibiting the Defendants from repudiating, terminating or
purporting to terminate the Operating Agreements, or from evicting or attempting
to evict SLS from the Communities.
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53. Plaintiffs request such other and further legal and equitable
relief, including but not limited to its actual and consequential damages,
attorneys' fees and costs, suffered as a result of the Defendants' actions in
amounts to be proven at trial, as the Court may deem appropriate.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs pray for entry of a judgment in their favor that
provides the following relief:
a. A declaration that: (i) SLS is not in default under
the Operating Agreements; (ii) SLS is not in material
breach of the Operating Agreements; (iii) the
Defendants may not repudiate, terminate or purport
to terminate the Operating Agreements; and (iv) the
Defendants may not evict or attempt to evict SLS
from the Communities;
b. A declaration that the Defendants have anticipatorily
breached the Operating Agreements, and that SLS is
entitled to the remedy of specific performance;
c. An order enjoining the Defendants from repudiating,
terminating or purporting to terminate the Operating
Agreements, or from evicting or attempting to evict
SLS from the Communities;
d. An order granting SLS specific performance of the
Operating Agreements;
e. Such actual and compensatory damages as the Court
may deem proper after appropriate proof at trial;
f. All costs, expenses, and attorneys' fees to which
SLS may be entitled;
g. All pre-judgment and post-judgment interest to which
SLS may be entitled; and
h. Any and all other relief as the Court may deem just
and appropriate.
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VERIFICATION
I SOLEMNLY AFFIRM UNDER THE PENALTIES OF PERJURY THAT THE CONTENTS OF THE
FOREGOING COMPLAINT ARE TRUE TO THE BEST OF MY KNOWLEDGE, INFORMATION, AND
BELIEF.
/s/ Michael E. Dearing
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Michael E. Dearing
Senior Vice President, Project Finance
Marriott International, Inc.
November 27, 2002 Respectfully submitted,
/s/ David R. Lipson
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David R. Lipson
O'MELVENY & MYERS LLP
Jeffrey W. Kilduff
David R. Lipson
1650 Tysons Boulevard
Suite 1150
McLean, VA 22102
Tel. (703) 918-2700
Fax (703) 918-2704
O'MELVENY & MYERS LLP
Paul G. Griffin
Kerry A. Krentler
555 13th Street, N.W.
Suite 500 West
Washington, D.C. 20004
Tel. (202) 383-5300
Fax (202) 383-5414