UPDATE 2-Developers Diversified sued by JV partner Coventry
* Coventry sues Developers Diversified for $500 mln
* Suit claims fraud, self-dealing, fiduciary violations
* Developers Diversified rejects claims
* Shares fall 4.9 percent in after-hours trade (Updates with after-hours trading, details, company's and analyst's comments, adds byline)
By Ilaina Jonas
NEW YORK, Nov 4 (Reuters) - Coventry Real Estate Advisors filed a $500 million lawsuit against Developers Diversified Realty Corp (DDR.N), accusing the mall and shopping center owner and manager of generating fees for itself while failing to live up to the fiduciary responsibilities to its joint-venture partner.
Coventry, a real estate investment manager for pension funds and other institutional investors, also fired Beachwood, Ohio-based Developers Diversified as the leasing and management agent for the 12 projects in which the two co-invested, according to the lawsuit.
The lawsuit, filed on Wednesday in Supreme Court of the State of New York, accuses Developers Diversified of fraud, malfeasance, mismanagement, violation of fiduciary and contractual obligations and self-dealing.
Coventry is seeking consequential and punitive damages.
"After attempting for years to compel Developers Diversified to live up to its obligations, it is with great reluctance that we take this step," Peter Henkel, Coventry's president and chief executive, said in a statement. "We have, however, a fiduciary obligation to protect the significant investment of hundreds of millions of dollars made by many institutional investors, including pension and retirement funds on behalf of their investors."
In a written statement, Developers Diversified said it had not seen the complaint but "vehemently denies the allegations set forth in the press release, and will vigorously defend itself against such allegations in any legal proceeding."
It also said it had not received notice of termination of any agreement with Coventry, and "denies that it has breached any terms of any such agreements."
As a partner in Coventry Real Estate Fund II, Developers Diversified agreed to manage, develop and lease properties that the fund acquired from Developers Diversified between 2003 and 2006, the complaint said.
The portfolio was a mixture of properties to be developed, redeveloped, and released. It also includes some vacant big box stores with the potential to be released.
Green Street Advisors analyst Nicholas Vedder said there may be similar lawsuits ahead as joint-venture partners take losses on their properties.
"We're entering a period of time where a lot of these joint ventures were structured right at the boom of the market or were structured a little bit before the boom had great years," Vedder said. "Now that things have turned south, it's interesting to see how a lot of these joint-venture partners respond to seeing the value of their assets go down significantly and realize they're paying fees on top of that."
Coventry accused Developers Diversified of adopting business practices that generated significant fee income at the fund's expense, according to the lawsuit.
Developers Diversified collected at least $28 million of fees from Coventry, more than Developers Diversified invested, according to the lawsuit.
"This action does not arise because of the decline in the national economy," the lawsuit states. "If the defendants had fulfilled their contractual and fiduciary duties in a timely manner the underlying projects would have been completed, sold or refinanced before the financial crisis came to affect commercial real estate."
Following the news of the lawsuit, shares of Developers Diversified were at $7.51 in after-hours trade, down 4.9 percent from their close of $7.90 on the New York Stock Exchange. (Reporting by Ilaina Jonas; Editing by Steve Orlofsky)
