Land & Bldgs. Inv. Mgmt. v. Taubman Ctrs., Inc. ( 2018 )

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 18a0453n.06
No. 17-2113
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
LAND AND BUILDINGS INVESTMENT )
MANAGEMENT, LLC, ) FILED
) Aug 30, 2018
Plaintiff-Appellant, ) DEBORAH S. HUNT, Clerk
)
v. )
) ON APPEAL FROM THE
TAUBMAN CENTERS, INC.; ROBERT S. ) UNITED STATES DISTRICT
TAUBMAN; WILLIAM S. TAUBMAN; GAYLE ) COURT FOR THE EASTERN
TAUBMAN KALISMAN; R&W-TRG, LLC; ) DISTRICT OF MICHIGAN
TAUBMAN VENTURES GROUP, LLC; TG )
PARTNERS; TF ASSOCIATES, )
)
Defendants-Appellees. )
Before: BOGGS, CLAY, and LARSEN, Circuit Judges.
LARSEN, Circuit Judge. In 2017, Land and Buildings Investment Management, LLC,
(“L&B”) sought to place two candidates on the Board of Directors of Taubman Centers, Inc. When
that effort failed, L&B filed suit against Taubman Centers and others, claiming: (1) that Taubman
Centers had violated its Articles of Incorporation by permitting Robert Taubman, William
Taubman, and Gayle Taubman Kalisman (collectively, “the Taubman Family”) to own stock in
excess of the charter’s Ownership Limit; and (2) that Taubman Centers had violated Section 14(a)
of the Securities Exchange Act of 1934, 15 U.S.C. § 78n(a), by filing a materially false and
misleading proxy statement. The plain terms of Taubman Centers’ charter foreclose L&B’s
claims, however. We, therefore, affirm the district court’s judgment dismissing L&B’s complaint
for failure to state a claim.
No. 17-2113, Land & Bldgs. Inv. Mgmt., LLC v. Taubman Ctrs., Inc.
I.
A.
Taubman Centers is a publicly traded Real Estate Investment Trust (REIT) incorporated in
Michigan. Its sole asset is its ownership of 71% of the partnership units of the Taubman Realty
Group Limited Partnership (“TRG Partnership”), which owns, manages, and leases malls and
shopping centers. The remaining 29% of the partnership units are owned by others, including the
Taubman Family.
In 1998, Taubman Centers issued Series B Non-Participating Convertible Preferred Stock
(“Series B Preferred Stock”) to the holders of the partnership units of TRG Partnership, with one
share of the stock issued for each partnership unit held. L&B alleges that each share of Series B
Preferred Stock is inseparable from the underlying partnership unit, claiming that “[t]he
restrictions in the Charter effectively limit the transfer of either security to assure that only holders
of the Operating Partnership Units hold Series B Preferred Stock.” L&B recounts a statement
from Taubman Centers’ website explaining that “[t]he operating partnership’s unit holders may
purchase one share of Series B preferred stock for each operating partnership unit owned” and that
“the preferred shares do not trade separately from the operating partnership units but are ‘stapled’
to the operating partnership units.”
Each share of Series B Preferred Stock, like each share of common stock, is entitled to one
vote in an election for the Taubman Centers Board of Directors (“the Board”). Additionally, Series
B Preferred Stockholders have the right to designate nominees for four of the nine seats on the
Board. Unlike common stock, Series B Preferred Stock does not provide a right to dividends or
other economic benefits.
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No. 17-2113, Land & Bldgs. Inv. Mgmt., LLC v. Taubman Ctrs., Inc.
Taubman Centers’ charter provides that “no Person (other than an Existing Holder) shall
Beneficially Own or Constructively Own shares of Capital Stock having an aggregate value in
excess of the Ownership Limit,” which is defined as “8.23% of the value of the outstanding Capital
Stock[.]” “Capital Stock,” in turn, is defined as “the Common Stock and the Preferred Stock[.]”
It is undisputed that the Taubman Family constitutes a “Person” and is not “an Existing Holder.”
If a person exceeds the Ownership Limit, the surplus stock must be surrendered. The purported
owner of the surplus stock is not entitled to vote such shares.
B.
L&B is a registered investment advisor and a shareholder in Taubman Centers. In April
2017, L&B launched a proxy contest to elect two candidates to the Taubman Centers Board of
Directors. Taubman Centers filed a proxy statement with the Securities and Exchange
Commission (SEC) on April 20, 2017, which stated that:
The Series B Preferred Stock is convertible into shares of common stock at a ratio
of 14,000 shares of Series B Preferred Stock to one share of common stock, and
therefore one share of Series B Preferred Stock has a value of 1/14,000ths of the
value of one share of common stock. Accordingly, the foregoing ownership of
Voting Stock does not violate the Ownership Limitations set forth in the Articles.
The proxy statement also declared that the Taubman Family was entitled to an approximately 30%
voting interest. At Taubman Centers’ June 2017 annual meeting, the Taubman Family exercised
its voting interest. L&B’s nominees to the Board were not elected.1
L&B then sued Taubman Centers, the Taubman Family, and four entities owned or
controlled by the Taubman Family through which the family owns the Series B Preferred Stock:
R&W-TRG, LLC; Taubman Ventures Group, LLC; TG Partners; and TF Associates, LLC. L&B
1
L&B recently informed this court that one of its nominees has since been elected to the
Board.
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No. 17-2113, Land & Bldgs. Inv. Mgmt., LLC v. Taubman Ctrs., Inc.
claimed that Taubman Centers had violated its Articles of Incorporation by allowing the Taubman
Family to own and vote stock in excess of the Ownership Limit and had violated Section 14(a) of
the Securities Exchange Act by filing a materially false proxy statement. Both of L&B’s
arguments relied on its allegation that the true value of Series B Preferred Stock must reflect the
stock’s connection to the underlying partnership units of TRG Partnership.
The defendants moved to dismiss the action for failure to state a claim upon which relief
could be granted, arguing that the charter expressly states that the Board determines the value of
Series B Preferred Stock and that the determination is final and binding. The district court agreed
with the defendants, finding that the Board had assigned “nominal value” to the Series B Preferred
Stock and that “the charter itself establishes that the liquidation value of Series B preferred stock
is $.001 per share and that Series B stock is convertible [to common stock] at a ratio of 14,000 to
1.” Land & Bldgs. Inv. Mgmt., LLC v. Taubman Ctrs., Inc., No. 17-11576, 2017 WL 3499900, *4
(E.D. Mich. Aug. 16, 2017). As to L&B’s Section 14(a) claim, the district court held that Taubman
Centers was “not required to adopt or disclose Plaintiff’s legal theory about the correct valuation
of Series B stock.” The district court accordingly granted the defendants’ motion and dismissed
L&B’s complaint for failure to state a claim. L&B brought this timely appeal.
II.
We review de novo a district court’s decision to grant a motion to dismiss for failure to
state a claim. Erie Cty. v. Morton Salt, Inc., 702 F.3d 860, 867 (6th Cir. 2012). “To survive a
motion to dismiss, [the plaintiff] must allege ‘enough facts to state a claim to relief that is plausible
on its face.’” Traverse Bay Area Intermediate Sch. Dist. v. Mich. Dep’t of Educ., 615 F.3d 622,
627 (6th Cir. 2010) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “When
determining facial plausibility, the court must construe the complaint in the light most favorable
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to the plaintiff.” Strayhorn v. Wyeth Pharm., Inc., 737 F.3d 378, 387 (6th Cir. 2013) (citation
omitted). A reviewing court must “accept all of the complaint’s factual allegations as true, and
determine whether the plaintiff undoubtedly can prove no set of facts in support of his claim that
would entitle him to relief.” Hall v. Callahan, 727 F.3d 450, 453 (6th Cir. 2013) (quoting Ziegler
v. IBP Hog Market, Inc., 249 F.3d 509, 511–12 (6th Cir. 2001)). “Assessment of the facial
sufficiency of the complaint must ordinarily be undertaken without resort to matters outside the
pleadings”; otherwise, the motion to dismiss must be treated as a motion for summary judgment.
Rondigo, LLC v. Twp. of Richmond, 641 F.3d 673, 680 (6th Cir. 2011) (citation omitted).
“However, a court may consider ‘exhibits attached [to the complaint], public records, items
appearing in the record of the case and exhibits attached to defendant’s motion to dismiss so long
as they are referred to in the complaint and are central to the claims contained therein’ . . . .” Id.
at 680–81 (alteration in original) (quoting Bassett v. Nat’l Collegiate Athletic Ass’n, 528 F.3d 426,
430 (6th Cir. 2008)).
A.
L&B first claims breach of contract based on Taubman Centers’ alleged violations of its
Articles of Incorporation. L&B claims that Taubman Centers violated its Articles by permitting
the Taubman Family to own stock in excess of the Ownership Limit and to vote that surplus stock
at the 2017 annual meeting. In support, L&B argues that the family’s shares of Series B Preferred
Stock, if properly valued, would have caused the aggregate value of the family’s stock to exceed
the Ownership Limit.
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No. 17-2113, Land & Bldgs. Inv. Mgmt., LLC v. Taubman Ctrs., Inc.
The Articles of Incorporation, however, assign the Series B Preferred Stock specific value.
When determining whether a person owns stock in excess of the Ownership Limit, the Articles
state that:
the total value of the outstanding Capital Stock shall be allocated among the
different classes and series according to the relative value of each class or series, as
determined by reference to the Market Price per share of each such class or series,
using the date on which the Transfer occurs as the relevant date, or the effective
date of the change in capital structure as the relevant date, as appropriate.
For stock that is not traded, like the Series B Preferred Stock, “Market Price” is defined as “the
market price of such class or series of shares on the relevant date as determined in good faith by
the Board of Directors of the Corporation.” For Series B Preferred Stock, the Articles provide
even more guidance, stating that:
The Series B Preferred Stock is convertible, and will be automatically converted
under the circumstances described below, into Common Stock at a conversion ratio
of 14,000:1; i.e., each 14,000 shares of Series B Preferred Stock may be converted
into one share of Common Stock.
The charter itself thus adopts a valuation formula for Series B Preferred Stock pursuant to which
the market price of Series B Preferred Stock is 1/14,000th the market price of common stock.
Nevertheless, L&B argues, the charter requires the Board to determine the market price of
the stock. Yet L&B’s complaint does not allege that the Board failed to determine the value of the
Series B Preferred Stock. L&B argues that the fact that it did not allege that there was a
determination is dispositive. The opposite is true. A plaintiff must allege facts to make its claim,
and L&B failed to allege that the Board did not make a determination. Additionally, the Taubman
Centers’ proxy statement outlined the 14,000:1 formula. L&B argues that the proxy statement was
only a “corporate statement” not attributable to the Board. But in its complaint, L&B
acknowledged that the proxy statement reflected the views of the Board, stating that:
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No. 17-2113, Land & Bldgs. Inv. Mgmt., LLC v. Taubman Ctrs., Inc.
Plaintiff’s efforts to reverse [Taubman Centers’] historical stock price were stymied
at the Annual Meeting because [Taubman Centers] and its Board continued to
permit the Taubman Family to breach the Ownership Limit set forth in the
Company’s Charter. Put simply, the Taubman Family was permitted to control
more than 30 percent of the shareholder vote resulting in Plaintiff needing an
artificially high number of votes to effect change at the Company. The [Taubman
Centers] Board touted this alleged advantage in its proxy materials, causing
further harm to Plaintiff.
(Emphasis added.) L&B’s complaint, then, not only fails to allege that there was no Board
determination, it affirmatively attributed the proxy statement to the Board.2
Next, L&B argues that any Board determination was not made “in good faith,” as the
Articles require, because using the 14,000:1 formula substantially undervalues the true worth of
Series B Preferred Stock.3 Noting that the Ownership Limit was designed to ensure that Taubman
Centers could pass the “5/50 Test” for REITs, L&B argues that this formula places Taubman
2
Because L&B itself attributed the proxy statement to the Board, we need not address
whether the proxy statement is attributable to the Board by virtue of its ending with the phrase “By
Order of the Board of Directors,” a fact not alleged by L&B in its complaint. See In re Omnicare,
Inc. Sec. Litig., 769 F.3d 455, 467 (6th Cir. 2014) (noting that we may only take judicial notice “of
the fact that [the corporation] filed [an SEC filing] and what that filing said, but we c[an]not
consider the statements contained in the document for the truth of the matter asserted, even at the
motion-to-dismiss stage” (citations omitted)).
L&B argues that there is no “proof as to what the Board’s records actually show” nor is there
evidence that the Board properly voted on a “resolution,” but we need not turn a blind eye to
L&B’s own statement attributing the proxy statement to the Board. See United States ex rel.
Sheldon v. Kettering Health Network, 816 F.3d 399, 409 (6th Cir. 2016) (noting that, when
evaluating a Rule 12(b)(6) motion, “the court need not accept legal conclusions or unwarranted
factual inferences” (quotation marks and citation omitted)).
3
In its reply brief, L&B made a new argument that no Board determination could have
been made in good faith because the defendants “used their four seats on [Taubman Centers’]
Board to rig the outcome.” Because L&B failed to raise this argument in its opening brief, it is
forfeited. See United States v. Crozier, 259 F.3d 503, 517 (6th Cir. 2001) (“We will generally not
hear issues raised for the first time in a reply brief.” (citing Bendix Autolite Corp. v. Midwesco
Enters., Inc., 820 F.2d 186, 189 (6th Cir. 1987))).
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Centers in jeopardy of losing its REIT status.4 But even if that were true—a matter upon which
we take no position here—it would not permit this court to ignore the plain language of the charter.
See In re Smith Trust, 745 N.W.2d 754, 757–58 (Mich. 2008) (“In interpreting a contract, it is a
court’s obligation to determine the intent of the parties by examining the language of the contract
according to its plain and ordinary meaning. If the contractual language is unambiguous, courts
must interpret and enforce the contract as written, because an unambiguous contract reflects the
parties’ intent as a matter of law.” (internal citations omitted)).
L&B’s claim that the Taubman Family owns stock in excess of the Ownership Limit
depends upon its rejection of the 14,000:1 valuation formula contained in the Articles of
Incorporation. Because L&B’s breach-of-contract claim is belied by the clear terms of the very
contract on which it is based, L&B has not stated a plausible claim. See Cates v. Crystal Clear
Techs., LLC, 874 F.3d 530, 536 (6th Cir. 2017) (“[W]hen a written instrument contradicts
allegations in the complaint to which it is attached, the exhibit trumps the allegations.” (quoting
Williams v. CitiMortgage, Inc., 498 F. App’x 532, 536 (6th Cir. 2012) (per curiam))).
4
In order to qualify as a Real Estate Investment Trust under the Internal Revenue Code,
Taubman Centers must comply with what is known as the “5/50 Test,” pursuant to which five or
fewer individuals may not own “more than 50 percent in value of [a corporation’s] outstanding
stock[.]” 26 U.S.C. § 542(a)(2). L&B contends that, when conducting this test, the Internal
Revenue Service will include the value of the associated partnership units of TRG Partnership
when calculating the value of the Series B Preferred Stock. This same value, L&B argues, must
be used to calculate the “Market Price” of Series B Stock, because, if not, the Ownership Limit
cannot ensure that Taubman Centers can pass the 5/50 Test. We need not decide what the “value”
of the Series B Preferred Stock would be under 26 U.S.C. § 542(a)(2) nor whether Taubman
Centers passes the 5/50 Test. This is a breach-of-contract action and the terms of the Articles of
Incorporation are clear.
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B.
As L&B’s first claim falls, so too does its second. L&B claims that Taubman Centers
violated Section 14(a) of the Securities Exchange Act of 1934 by making the following
declarations in its proxy statement: (1) that one share of Series B Stock has a value of 1/14,000th
of the value of one share of common stock, (2) that the Taubman Family’s ownership of stock does
not violate the Ownership Limit, and (3) that the Taubman Family is entitled to an approximately
30% voting interest in Taubman Centers. The truth of the second and third statements, as the
parties seem to agree, depends on the truth of the first. The question before us, therefore, is whether
L&B has stated a claim under Section 14(a) regarding the declaration in the proxy statement that
one share of Series B Stock is valued at 1/14,000th the value of one share of common stock.
Section 14(a) declares it “unlawful” to solicit any proxy “in contravention of such rules
and regulations as the [Securities and Exchange] Commission may prescribe as necessary or
appropriate.” 15 U.S.C. § 78n(a)(1). SEC Rule 14a-9 prohibits solicitations that:
contain[] any statement which, at the time and in the light of the circumstances
under which it is made, is false or misleading with respect to any material fact, or
which omits to state any material fact necessary in order to make the statements
therein not false or misleading or necessary to correct any statement in any earlier
communication with respect to the solicitation of a proxy for the same meeting or
subject matter which has become false or misleading.
17 C.F.R. § 240.14a-9(a). Therefore, to state a Section 14(a) claim, L&B must show as one
element that the proxy statement contained a materially false or misleading statement or omission.
L&B fails at this basic step: Taubman Centers did not make a materially false or misleading
statement by recounting the value of Series B Preferred Stock used to determine voting shares and
whether the Ownership Limit was reached. L&B argues that the statement is false because the
Articles of Incorporation require a different valuation, based on the Articles’ definition of “Market
Price.” But, as discussed above, the Articles assign the Series B Preferred Stock value, declaring
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that the stock is “convertible . . . into Common Stock at a conversion ratio of 14,000:1[.]”
Accordingly, L&B failed to state a claim under Section 14(a) upon which relief can be granted.
***
We AFFIRM the district court’s dismissal of L&B’s claims for failure to state a claim.
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