Earlier this month, a registration statement was filed with the Securities and Exchange Commission stating that The Carlyle Group L.P. shareholder disputes must be settled in securities arbitration proceedings conducted in Delaware. On January 10, 2012, the amended registration statement was filed as part of the company’s plan to raise a public offering this spring amounting to roughly $1 billion.
In the landmark arbitration ruling by the Supreme Court in AT&T Mobility v. Conception, the decision was made that courts could not refuse to enforce mandatory arbitration provisions in a consumer agreement. This decision was made on the grounds that the Federal Arbitration Act preempts California law, which viewed these agreements as unconscionable. It is not clear how this ruling applies to shareholder litigation, but the Carlyle Group wants to find out.
The Carlyle IPO is a partnership offering limited partner interests for sale. Because of the partnership structure, common unitholders are more limited than normal shareholders. According to the registration document, unitholder disputes must be conducted by three arbitrators in Wilmington Delaware in individual arbitrations. In the event that the amount at issue is under $3 million, only one arbitrator is necessary.
Of this issue, one of the lawyers who argued in the Conception case said, “There will be a threshold question of whether the corporate documents create an arbitration agreement between Carlyle and the investors that is a contract protected by the Federal Arbitration Act.”
Another lawyer who is skeptical that the provision would be enforceable stated that, “Fortunately the federal securities laws do not allow companies to self-immunize themselves from investors who are defrauded in connection with the purchase of securities in our public markets.”
Investment attorneys are waiting to see what the Securities and Exchange Commission’s response will be to the IPO filings. If you are a Carlyle Group shareholder or unitholder and have reason to believe you have a valid securities arbitration claim, find out more about your legal rights and options by contacting an investment attorney at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.