On June 7, 2010, an IMH Secured Loan Fund Unitholder, filed a proposed class action lawsuit captioned, Charlotte Wood, on behalf of herself and all others similarly situated v. IMH Secured Loan Fund, LLC, IMH Financial Corporation, Investors Mortgage Holdings, Inc., IMH Holdings, LLC, IMH Management Services, LLC, Shane Albers, William Meris and Steven Darak (the “IMH Defendants”), before the United States District Court for the District of Arizona (the “Wood Action”), as well as an application to enjoin the vote from proceeding. In summary, the Wood Complaint alleges that the Conversion Transaction was: (1) being effectuated pursuant to a false and misleading Consent Solicitation and other false statements by the IMH Defendants, and (2) that the Conversion Transaction was both procedurally and substantively unfair to IMH Unitholders. Therefore, the complaint alleges, the Conversion Transaction is a breach of both the IMH Defendants common law fiduciary obligations to the Unitholders and their duties under the Fund’s Operating Agreement.
On June 9, 2010, the IMH Defendants announced that they had obtained a sufficient number of votes to move forward with the Conversion Transaction, although the vote had not been certified, thereby mooting Wood’s injunction motion. According to the preliminary results reported by IMH, 64.67% of the total membership interests submitted a vote with 57.48% of the net votes being cast in favor of the Conversion Transaction. On June 10, 2010, the IMH Defendants further announced that they were voluntarily dismissing the action entitled, IMH Secured Loan Fund, LLC v. David I. Kurtz, an individual, on behalf of himself, and all other persons similarly situated, Case No. 2:10-01071-ROS (the “Kurtz Action”), which they had filed before the Arizona court, alleging that certain Unitholders were trying to interfere with the vote.
On June 14, 2010, the “Committee to Protect IMH Secured Fund,” filed an action and injunction motion similar to the Wood Action, before Vice Chancellor Leo Strine in the Chancery Court for the State of Delaware. Thereafter, the Vice Chancellor Strine held a short telephonic hearing indicating that he was denying any application for injunctive relief, but that the any harm to the Unitholders as a consequence of the Conversion Transaction and the attendant vote, could be compensated for by monetary damages. Wood has re-filed her action before Vice Chancellor Strine, and intends to continue her action for damages on behalf of the Unitholders.