The 50-page complaint, brought by CNL investors San Francisco-based Sutter Acquisition Fund Inc. and Robert Lewis, alleges the merger would be a $140-million windfall for CNL Financial Group chairman James M. Seneff Jr., CNL president and treasurer Robert A. Bourne and CNL Realty Corp., the general partners of the merger participants. The $140 million "rightfully belongs to the limited partners," the suit argues.

The defendants are CNL Restaurant Properties Inc. (CNLRP), CNL Restaurant Investments Inc., Restaurant Capital Corp., US Restaurant Properties Inc. (USRP) and CNL Income Fund Ltd. 1 to 18, known as the CNL Income Funds.

"The proposed merger is a vehicle to bail out CNLRP from financial difficulties," states the suit, filed in Dallas District Court. "Since general partners Seneff and Bourne are also heavy investors in CNLRP and own virtually no interest in the CNL Income Funds, the general partners are in an irreconcilable conflict of interest that disables them from fulfilling their responsibilities as the general partners of the 18 CNL Income Funds."

The suit seeks the removal and replacement of Seneff and Bourne from their positions with the CNL Income Funds and a full accounting from the CNL Income Funds.

"The over-arching objective of this action is to make certain that the limited partners of the CNL Income Funds receive their fair share of consideration from the proposed merger or any other transaction that may materialize," the suit states. The suit seeks no direct monetary damages.

A CNL Financial Group spokesperson tells GlobeSt.com the company will be addressing the fairness issue directly this week. "We are sending out over 100,000 proxy statements to our investors which will give them a chance to vote on the merger," Gosselin says.

She calls the suit "baseless" and "one that was not initiated by the investors but by the law firms involved." She notes that a comparable complaint was filed in 1998 against CNL Restaurant Properties Inc. by two of the four law firms involved in the present suit "and they were dismissed."

She adds, "This is a $3-billion transaction and when you have transactions of that size surfacing, you get the attention of certain parties who normally are not interested in the company's general operations."

USRP and CNLRP are publicly owned real estate investment trusts. The 18 CNL Income Funds are publicly owned limited partnerships. Both groups own and operate restaurant properties throughout the US.

The plaintiffs in this action are represented by Chimicles & Tikellis LLP of Haverford, PA; the New York City-based firms of Goodkind Labaton Rudoff & Sucharow LLP and Wolf Haldenstein Adlet Freeman & Herz LLP; and Craddock Reneker & Davis LLP of Dallas.

Instant Insights /

CNL Investors Challenge Planned $1B-Plus Merger

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