The Fifth Circuit Court of Appeals Dismisses Sessa Capital’s Injunction Appeal as Moot
Thursday, August 24, 2017 at 06:00AM
Allison Takacs

In Ashford Hosp. Prime, Inc. v. Sessa Capital (Master), LP, No. 16-10671, 2016 BL 418598 (5th Cir. Dec. 16, 2016), the Fifth Circuit Court of Appeals dismissed hedge fund Sessa Capital’s (“Sessa”) appeal of the district court’s decision.  Sessa had filed for injunctive relief concerning the election of the board of director at Ashford Hospitality Prime, Inc.’s (“Ashford Prime”) annual meeting.  The court found the appeal moot since the injunctive relief did not present a live controversy.

Sessa sought to nominate directors to replace five current members of the Ashford Prime board.  Ashford Prime’s bylaws required nominees to submit, in advance, questionnaires so that the Board could evaluate their qualifications and plans if elected. Sessa’s candidates provided the required questionnaires, but Ashford Prime rejected them as incomplete and alleged nondisclosure of plans to either force sale of the company or invalidate an advisory agreement containing a substantial termination fee in the event of major board composition changes.

Sessa argued these omissions were immaterial and filed suit in Maryland seeking court ordered approval of the nominees. In the litigation that ensued, Sessa sought to prevent Ashford Prime from soliciting proxies until the board approved Sessa’s candidates. Consequently, Ashford Prime sought a court declaration that the Sessa candidates were ineligible due to their incomplete and noncompliant questionnaires. 

The district court, applying Maryland law, ruled in favor of Ashford Prime, finding that the business judgment rule warranted deference to Ashford Prime’s decision to deny approval of Sessa’s candidates.  Sessa filed a notice of appeal from the district court’s order denying its request for injunction and granting Ashford Prime’s request. Sessa asked the Fifth Circuit to stay the district court’s order and postpone the June 10 election until resolution of the appeal. A motions panel denied Sessa’s request and the board election occurred on June 10, 2016, resulting in the re-election of Ashford Prime’s board directors. 

Sessa pursued the appeal of the injunction alleging the business judgment rule did not apply to board election matters. Ashford Prime filed a motion to dismiss the appeal as moot given the election had already taken place. Sessa argued its appeal was not moot for three reasons: (1) the part of the injunction enjoining it from soliciting votes extended beyond the June election, (2) the appeal constituted an “exceptional situation”, and (3) success in the appeal could invalidate the election.

With respect to the continuing nature of the injunction, the court found the matter abandoned because the appeal did not ask for changes to that portion of the preliminary injunction.  The court also acknowledged the exception to mootness for situations “capable of repetition yet evading review”.  Sessa’s failure to obtain a stay in this case did not establish it would be unable to do so in a repeat controversy.

As for the argument against mootness that the court could invalidate the results of the election, interlocutory review was only possible of relief sought in trial court.  28 U.S.C. § 1292(A)(1).   Sessa, however, provided no argument in the alternative stipulating that if the election took place, results should be invalid.

Accordingly, the court dismissed the appeal as moot.  The court did not express a view whether Sessa may start again in a trial court requesting the relief of undoing the June election or whether such relief is warranted in the event it can establish liability.

The primary materials for this case can be found on the DU Corporate Governance website.

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