It was a infamous “he said, she said.” Now, a court docket has laid down its model of occasions within the authorized dispute amongst former leaders at a former multifamily large.
Fairstead launched in 2014 and grew to one of many nation’s largest house landlords. By 2022, it had $7.8 billion in assets and tasks within the pipeline and 24,000 housing items throughout 28 states with ambitions to develop even larger.
However latest years have seen the agency caught up in inner disputes, touchdown in court docket and sparking a number of trials.
In 2016, an worker named John Tatum III joined the agency to construct up a division centered on low-income housing tax credit. When that department of the enterprise “boomed,” in response to the latest determination, Tatum sought extra fairness in that line of the enterprise, alongside Fairstead co-founder William Blodgett, who had recruited him. Their ask kicked off a blowup. Goldberg, Blodgett, Tatum and Fairstead’s beforehand little-known backer, billionaire hedge funder Stuart Feldman, ended up in court docket.
Like many opaque enterprise disputes, this one gained readability within the Delaware Courtroom of Chancery. In late October, a choose sided with Tatum, publishing a 100-page opinion that went largely in his favor.
The trial, which concerned 10 witnesses and almost 2,600 reveals, doesn’t simply present a play-by-play of the drama and negotiation at Fairstead. The choose, Vice Chancellor J. Travis Laster, additionally implied he would stand by the information specified by Tatum’s determination when he dives into one other case based mostly on the identical occasions: one introduced by former Fairstead accomplice Blodgett, which can start early subsequent 12 months.
Laster’s opinion decided the worth of Tatum’s fairness in a Fairstead fund at $7.8 million, which can bear on Blodgett’s case.
A “golden goose”
The choose paints an image of competing personalities, egos and visions at Fairstead.
As an alternative of “As soon as upon a time,” Laster begins: “A hedge fund supervisor with capital, an lawyer with authorized savvy, and an entrepreneur with power and imaginative and prescient fashioned a fund complicated that invested in reasonably priced housing tasks.”
That trio are Feldman, Goldberg and Blodgett, respectively.
Because the choose tells it, the agency’s reasonably priced arm had been principally in rent-stabilized inventory when Tatum joined. Tatum grew Fairstead Reasonably priced by doing low-income tax credit score offers. Between 2017 and 2022, the enterprise accomplished offers with developer charges of $181 million.
“Blodgett and Tatum got here to imagine that that they had created important worth (that they had) and deserved a considerable, even controlling fairness stake within the enterprise,” Laster wrote.
Tatum was solely entitled to five.25 % of the enterprise he was constructing, whereas Feldman and Goldberg not directly managed the lion’s share. (Blodgett had a 9.71 % curiosity by means of an LLC that managed Fairstead Reasonably priced.) Tatum and Blodgett pushed for restructuring at Fairstead and an even bigger piece of the pie. Each felt in addition they wanted to supply fairness to staff. Goldberg inspired them to give you a proposal.
In the summertime of 2020, the pair retained a regulation agency to advise them on restructuring, but additionally on a plan B: a brand new firm. Blodgett, who had married into the influential Tisch household, started assembly with different funders, together with the workplaces of his prolonged household.
In early 2021, Tatum and Blodgett acquired a proposal from Goldberg about fairness, however it concerned a long-term incentive plan that made their restructuring appear unlikely.
Blodgett’s thought course of is legible by means of notes he made to himself on the time. He thought-about himself the agency’s “golden goose,” he wrote, “leveraging my identify, my household’s identify, my relationships,” whereas “getting NOTHING in return. NOTHING.”
He edged nearer to a choice.
“I’m 38 years previous,” he wrote. “The time is now.”
But nonetheless hopeful a couple of restructuring, Blodgett introduced a proposal to Goldberg: He would substitute the lawyer as CEO, with Tatum as COO. Goldberg dismissed it out of hand.
“Restarting is a actuality,” Tatum texted Blodgett after.
As they turned extra severe about leaving to begin a brand new firm, Blodgett started to share confidential Fairstead data with two separate household workplaces, that of the Tisches and of his father-in-law, hedge funder Donald Sussman.
To Feldman, he proposed a plan to provide himself 40 % of the fairness and a path to full management in a decade.
“Everyone seems to be right here due to me. However they understand that I’ve no energy. No management,” Blodgett informed Feldman. “Everybody says it’s my firm.” Tatum had earlier made the same assertion to Goldberg: “I cannot promote a dream I do know nothing about and haven’t any management over,” he stated in April of 2020.
In the end, no concepts for a brand new construction have been accredited.
With staff starting to eye the exit and whispers of a brand new enterprise, Goldberg proposed a transition plan. However in September 2021, Fairstead’s IT division intercepted an e-mail to Blodgett: an bill from the regulation agency he retained, concerning the new firm.
Feldman tried to squeeze Blodgett, terminating him for trigger and canceling all his fairness. Tatum resigned shortly after however continued to work for a 120-day discover interval and “thought he left on good phrases.” Blodgett began a competing enterprise, Tredway. Following his discover interval, Tatum finally didn’t go to work for him.
After Tatum left, Fairstead provided Tatum a lowball quantity for his fairness. When Tatum rejected it, Fairstead retroactively terminated him for trigger and declared his fairness forfeited. Tatum sued the corporate. However, in a panic following the unique restructuring assembly, Tatum had downloaded hundreds of paperwork, each private and confidential. Although he later returned a lot of the confidential paperwork, Fairstead countersued, arguing Tatum breached his employment contract and his fiduciary responsibility.
“Not credible”
Michael Carlinsky, an lawyer with Quinn Emanuel for Fairstead, declined to touch upon behalf of the corporate.
The choose rejected a number of factors from Feldman and Goldberg’s accounts.
Goldberg at trial denied understanding that Tatum and Blodgett wished substantial possession and management. He additionally denied encouraging them to give you a restructuring proposal and telling them that he was engaged on a plan to get them extra fairness.
Feldman denied discussing a three way partnership with Blodgett.
“The contemporaneous paperwork present that Goldberg each knew what Blodgett and Tatum wished and was attempting to steer them towards prospects that Feldman may discover acceptable,” Laster wrote.
In the end, within the case of Tatum, the court docket discovered that Goldberg and Feldman’s conduct round his departure, together with cancelling Tatum’s fairness pursuits, was in unhealthy religion. Tatum was awarded the worth of his 5.25 % fairness. The choose sided with Tatum’s appraiser as to that worth, quite than with Fairstead’s. That put the award at about $7.8 million. With a proportion of the promote on two gross sales, damages shall be almost $10 million, earlier than curiosity.
The choose additionally largely rejected Fairstead’s claims of breach of contract and breach of fiduciary responsibility, though he agreed that Tatum breached his employment contract by downloading firm paperwork.
Fairstead was awarded the price of investigating that breach, about $155,000.
In a press release, Tatum stated he was nonetheless pleased with what the staff constructed at Fairstead and the companions that made it attainable.
“What adopted my exit was an orchestrated try by Fairstead to erase that legacy by assaulting my character, burying me in litigation, and taking what was rightfully mine,” he wrote. “The court docket’s thorough determination units the document straight.”
Tatum’s authorized staff included his spouse, Sara Shaw Tatum, a litigator and former Supreme Courtroom clerk.
Blodgett’s legal professionals at Susman Godfrey declined to remark about their shopper’s case, and it’s unclear whether or not he would fare equally to Tatum. In January, a unique Delaware determination decided that Fairstead didn’t have the appropriate to take Blodgett’s fairness. In April, an arbitrator found Blodgett had misused Fairstead’s proprietary data and enlisted different staff in a plan to take management of the corporate. As a result of that pertains to Blodgett’s employment contract, not his working settlement, it doesn’t indicate that Blodgett’s whole pursuits could be canceled, in response to the choose.
In 2022, when it had a $6 billion portfolio and 16,500 items, Goldberg informed The Actual Deal that it was aiming to have 50,000 items by 2027. Requested then about Blodgett’s departure, Goldberg stated: “I believe in some methods change is nice.”
Learn extra
Messy wins: Fairstead, Blodgett both claim victory in arbitration
Fairstead claims ex-partner inflated billion-dollar deal
“I f*cking rope-a-doped you”: Fairstead partners turn on each other
