An Under Armour investor sued company founder Kevin Plank in federal court, accusing him of breaching his fiduciary duty to the company and shareholders and unjustly enriching himself through his Port Covington development, hundreds of acres along the Patapsco River in South Baltimore slated to become a $5.5 billion mini-city and Under Armour's global headquarters.
Patricia Mioduszewski, a shareholder from New Jersey, filed the suit in U.S. District Court in Baltimore on behalf of the sports apparel brand, also naming two board members and Under Armour as defendants. She alleges that Plank profited from the sale of land to Under Armour and that millions of dollars in tax incentives and public financing that will go to Plank's development firm belonged to Under Armour. She is seeking damages for the company.
Plank, Under Armour's CEO and controlling stockholder, stands to make billions of dollars from the development through his real estate firm, Sagamore Development, the lawsuit says. The project won a $660 million package to finance infrastructure, the largest of its kind in city history, from Baltimore city in September 2016. Sagamore began amassing property on the waterfront parcel south of Interstate 95 in 2012 and now owns 235 acres in a joint venture formed with Goldman Sachs in 2017.
"Plank used [Under Armour's] commitment to anchor the development to attract at least hundreds of millions, if not billions, of dollars in public and private investments to his development project," says the lawsuit, filed Monday. "All told, he will profit to the tune of billions of dollars from the Port Covington project, and the project itself would not have been possible without [Under Armour] as the anchor of the development."
In a statement, Under Armour spokeswoman Kelley McCormick said the company "does not believe there is any merit to the claims raised in the lawsuit."
Mioduszewski owns 401 shares of Under Armour stock worth about $6,500 at Tuesday's closing price of $16.35 a share, according to the lawsuit. She aims to recoup losses Under Armour sustained because of alleged "wrongdoing" by Plank and the company.
Her lawyers declined to comment on the case Tuesday, saying their court filing speaks for itself.
The company has struggled since years of eye-popping growth stalled, starting in late 2016. Sales growth slowed amid store closings by key retailers, intense competition and changing demand for athletic apparel. The company reported some money-losing quarters last year and its stock price tumbled.
Mioduszewski's case centers partly around a parcel in the Port Covington district that Sagamore purchased for about $35 million in 2014. Under Armour announced in June 2016 that it had purchased the land for $70.3 million from Sagamore. The company said it purchased the land at fair market value at no profit to Plank, undergoing a governance review process that involved independent board members who were advised by an independent real estate firm.
The company said in its 2017 proxy statement that it decided to buy the land, where it was leasing an office building from Sagamore, after "we determined that we would realize greater benefits by acquiring the parcel that includes the office building as well as surrounding parcels in order to further expand our corporate headquarters to accommodate our growth needs."
Mioduszewski believes those transactions may not have been arm's-length because Plank controls the board and because of his apparent profit, the lawsuit says. The lawsuit also noted that the land deal accounted for the biggest chunk of overall related-party transactions between Under Armour and Plank in 2016, which also included $2.4 million the company paid to lease aircraft owned by Plank.
Through Plank's control over the company and its board, "he directed over $70 million to himself and entities controlled by him in improper and unfair related party transactions and used [Under Armour] as a valuable building block for his Port Covington development without fairly compensating the company," the lawsuit said.
While the lawsuit involves Port Covington, the lawyers are not seeking an injunction against it going forward or any payout from the project. Bill Cole, the president of the Baltimore Development Corporation, the city economic development agency, said the case "has no bearing whatsoever on the Port Covington project."
Asked about the dispute, Marc Weller, the lead Port Covington developer, said in a statement that the project remains on schedule.
Anthony Ashton, a Baltimore business attorney who is not involved in the case, said if the case is successful, Plank and the other defendants could end up paying some of their own money back to Under Armour.
"Whether any individual shareholder would receive any money in his or her pocket is still to be seen," said Ashton, a partner at Baxter, Baker, Sidle, Conn & Jones.
Mioduszewski asked Under Armour's board last May to investigate whether breaches of fiduciary duty and "other wrongdoing" occurred through the related-party land transaction, disclosed in April 2017 by Under Armour's board. The board denied her request last fall, saying Plank did not benefit from the transaction and that the board's audit committee, which oversaw the transaction, found it to be at arms length. Audit committee members Douglas E. Coltharp and A.B. Krongard, both directors, are named in the suit along with Plank.
In her lawsuit, Mioduszewski said the board's conclusions, in their response to her, conflict with the public record.
By January 2016, Plank had decided Under Armour would move from its Locust Point headquarters to Port Covington and become the long-term anchor of a project that could grow to 18 million square feet of offices, housing, shops and restaurants over more than two decades. But the board, in its response to Mioduszewski, said the audit committee was considering different ideas in early 2016 about where to move or expand the headquarters and that it didn't approve Under Armour's purchase of the Port Covington site until June 2016, according to the lawsuit.
"This assertion is contradicted by the public record which shows that beginning six months earlier, Plank and Sagamore were seeking, and ultimately obtained, over a half billion dollars in public financing on the basis of Plank's representation that [Under Armour] would be the anchor of the project over the next 20 years," the lawsuit says.
The lawsuit, citing Under Armour's public filings, alleges that none of the city tax incentives or public financing went to the company as they would have in an arms-length purchase, the lawsuit said.
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Though the incentives will not be handed to Under Armour, the company expects to benefit from community improvement to the areas around its proposed campus.
"The TIF funds will be used only for public infrastructure projects such as roads, utilities, sewers, waterlines, walkways and parks," Under Armour's McCormick said in a statement. "Under Armour will ultimately realize the benefits of improvements to the areas surrounding our Port Covington campus."
The Baltimore Sun Media Group has a long-term lease with Sagamore on its printing plant in Port Covington. The building will become the newspaper's headquarters in coming months.
Damages due to Under Armour include millions of dollars paid in compensation to Plank, "while he was breaching his duty of loyalty," as well as harm to the company's corporate image, Mioduszewski alleges in the suit.
Baltimore Sun reporter Ian Duncan contributed to this article.