Stender et al v. Archstone-Smith Operating Trust

Filing 311

ORDER denying 302 Plaintiffs Motion to Vacate Confirmation of the Arbitration Award Based on Newly Discovered Evidence, by Judge William J. Martinez on 7/21/2014.(evana, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge William J. Martínez
Civil Action No. 07-cv-02503-WJM-MJW
STEVEN A. STENDER,
HAROLD SILVER, and
INFINITY CLARK STREET OPERATING, L.L.C., on behalf of themselves and all others
similarly situated,
Plaintiffs,
v.
ARCHSTONE-SMITH OPERATING TRUST, et al.,
Defendants.

ORDER DENYING PLAINTIFFS’ MOTION TO VACATE CONFIRMATION OF THE
ARBITRATION AWARD BASED ON NEWLY DISCOVERED EVIDENCE

Plaintiffs Steven A. Stender, Harold Silver, and Infinity Clark Street Operating
(collectively “Plaintiffs”) bring this putative class action against Defendants ArchstoneSmith Operating Trust (“Archstone”) and others (collectively “Defendants”) arising out of
a 2007 transaction in which the publicly held Archstone-Smith Real Estate Investment
Trust (“REIT”) was taken private. (Sec. Am. Compl. (ECF No. 266) pp. 2-3.)
Before the Court is Plaintiffs’ Motion to Vacate Confirmation of the Arbitration
Award Based on Newly Discovered Evidence (“Motion”). (ECF No. 302.) For the
reasons set forth below, the Motion is denied.
I. LEGAL STANDARD
Plaintiffs move for relief pursuant to Federal Rule of Civil Procedure 60(b). Rule
60(b) provides:

On motion and just terms, the court may relieve a party or its
legal representative from a final judgment, order, or
proceeding for the following reasons: (1) mistake,
inadvertence, surprise, or excusable neglect; (2) newly
discovered evidence that, with reasonable diligence, could
not have been discovered in time to move for a new trial
under Rule 59(b); (3) fraud (whether previously called
intrinsic or extrinsic), misrepresentation, or misconduct by an
opposing party; (4) the judgment is void; (5) the judgment
has been satisfied, released or discharged; it is based on an
earlier judgment that has been reversed or vacated; or
applying it prospectively is no longer equitable; or (6) any
other reason that justifies relief.
Fed. R. Civ. P. 60(b).
II. FACTUAL AND PROCEDURAL BACKGROUND
Plaintiffs owned Class A-1 Common Units of the Archstone-Smith Operating
Trust (“A-1 Units”).1 (Am. Compl. ¶ 1.) A-1 Units had the benefit of deferred taxation,
and such benefit was a primary reason why investment in an REIT, such as Archstone,
was beneficial. (Id. ¶ 55.) The obligations of the REIT to the holders of the A-1 Units
were set forth in a Declaration of Trust (“DOT”), which was executed in 2001. (Id. ¶ 59.)
The DOT provided that Archstone would reimburse A-1 Unit holders if any merger
resulted in the holder losing their tax-deferral benefits. (Id. ¶¶ 59-61.)
In 2007, Archstone announced that it had signed a merger agreement, which
eliminated the A-1 Units. (Id. ¶ 90.) A-1 Unit holders were required to elect either to
have their A-1 shares converted to Series O units, or to take a cash buyout. (Id. ¶¶ 9699.) Plaintiffs’ belief that the Series O units did not offer the same benefits as the A-1

1

To avoid unnecessarily wasting judicial resources, the Court has adopted the factual
and procedural history previously set forth in the Order granting Defendants’ Motion to Confirm
Arbitration Award. (ECF No. 243.)

2

Units, amongst other issues, led to the filing of this action. (Id.)
On September 30, 2008, the Court ordered that Plaintiffs’ breach of contract
claim relating to the tax-deferral provisions of the DOT was subject to an arbitration
clause. (ECF No. 76.) Retired United States District Court Judge Bruce Kaufman (the
“Arbitrator”) presided over a nine-day evidentiary hearing in October 2012. (ECF No.
184-1 at 2.) The parties submitted post-hearing briefs, and the Arbitrator held oral
argument in January 2013. His final decision in favor of Archstone was issued on
March 8, 2013 (the “Award”). (Id.) After a thorough analysis of the arguments raised by
the parties, the Arbitrator concluded as follows:
This arbitration boils down to one inquiry—did the merger
result in A-1 Unit Holders being required to recognize federal
income taxable gain. For some A-1 Unit Holders, like
Claimants, the merger did in fact result in the recognition of
taxable gain but only because they chose the cash option.
However, for the reasons stated herein, they could have
chosen Series O Units and the record is devoid of evidence
that this choice would have resulted in the recognition of
taxable gain. . . . Claimants were not required to recognize
taxable gain as a result of the merger and therefore
Respondent did not breach Section 2 of the TPA.
(Id. at 11.) On November 8, 2013, the Court granted Archstone’s Motion to Confirm
Arbitration Final Award. (ECF No. 243.)
III. ANALYSIS
To qualify for relief under Rule 60(b)(2)2, the moving party must show: (1) the
evidence was newly discovered since the arbitration; (2) the moving party was diligent

2

Although Plaintiffs purport to rely on both Rule 60(b)(1) and (2) in support of their
Motion, because the basis for their Motion is newly discovered evidence, the Court will consider
the Motion pursuant to Rule 60(b)(2).

3

in discovering the new evidence; (3) the newly discovered evidence is not merely
cumulative or impeaching; (4) the newly discovered evidence is material; and (5)
reconsideration with the newly discovered evidence would probably produce a different
result. Dronsejko v. Thornton, 632 F.3d 658, 670 (10th Cir. 2011).
Plaintiffs allege that the newly discovered evidence consists of Schedule K-1 tax
forms that holders of the Series O units received in late 2013, as well as a December
19, 2013 letter from Archstone to these unitholders. The Schedule K-1 forms showed
that the Series O units had incurred tax liability for the period of January 1, 2012 and
February 27, 2013. (ECF No. 303-1 at 2.) The December 19, 2013 letter was
Archstone’s explanation of why the Schedule K-1 forms were sent, and why the Series
O units incurred taxable gain. (Id.) In short, the letter explained that Archstone sold
assets in February 2013, and that this sale resulted in taxable gains that were allocable
among the partners of the trust agreement, including the Series O units. The letter
stated that the difference between the value of the Series O units at the time of the
2007 merger and the 2013 asset sale was “unrealized gain” that was “not covered by a
tax protection agreement”. (Id.)
Plaintiffs contend that this evidence proves the position Plaintiffs took at the
arbitration that the Series O units lacked the tax-deferral provisions of the prior Series
A-1 shares. (ECF No. 302.) Plaintiffs ask the Court to vacate its Order confirming the
arbitration award, and send the case back to the Arbitrator for reconsideration of the
case based on newly discovered evidence. (Id. at 13.)
The Court finds that Plaintiffs have satisfied the first three prongs of the Rule
60(b)(2) test. The arbitration hearing was in October 2012, and the decision issued on
4

March 8, 2013. (ECF No. 184-1 at 2.) The newly discovered evidence came from
Archstone in late 2013 or early 2014. (ECF No. 303-1.) Thus, there is no doubt that
this evidence was not available at the time of the arbitration. Additionally, Plaintiffs filed
the instant Motion only a few months after discovering the evidence. Given the time
needed to investigate and put together the Motion, the Court finds that Plaintiffs acted
diligently. Finally, the Court finds that the evidence is not cumulative of other evidence
already in the record, as the Arbitrator repeatedly noted that the record was devoid of
evidence showing that the Series O units lacked tax-deferred status. (See ECF No.
184-1 at 9-11.)
However, the Court finds that Plaintiffs have failed to show that the newly
discovered evidence is material or would have probably resulted in a different outcome.
The Arbitrator framed the issue before him as whether the Series O units were an
adequate alternative to the cash option, and he plainly stated that “[t]he question of
whether Series O was a viable alternative must be evaluated based on the facts
available at the time of election.” (ECF No. 184-1 at 4 n.2.) The newly discovered
evidence shows only that—as of late 2013—holders of the Series O units received
confirmation that the Series O units do not have the same tax-deferral benefits as the
Series A-1 shares. (See ECF Nos. 303 at 5-6; 303-1.) Because holders of the Series
A-1 units did not have this information in 2007 when they were forced to choose
between the cash option and the Series O units, the newly discovered evidence was
not material to the Arbitrator’s decision.
Plaintiffs argue that the newly discovered evidence is material because the
Arbitrator repeatedly observed that there was no evidence showing that the Series O
5

units would necessarily result in taxable gain. (ECF No. 303 at 11 (citing ECF No. 1841).) The Court agrees that the Arbitrator made a number of comments about the lack of
evidence showing that any Series O holder had incurred taxable gain. (ECF No. 184-1
at 9-11.) However, the Arbitrator plainly confined the relevant evidence to what was
known to investors at the time they were in the position to make the election. (Id. at 4
n.2.) Because the investors did not know of events that would occur in late 2013 or
early 2014 at the time they chose between the cash buyout and the Series O units, this
newly discovered evidence was not material to the Arbitrator’s decision. For the same
reasons, the Court finds that Plaintiffs have failed to show that, if the Arbitrator had
considered the newly discovered evidence, the outcome of the arbitration would
probably be different.
Relief under Rule 60(b) is “extraordinary and may only be granted in exceptional
circumstances.” Dronsejko, 632 F.3d at 664 (internal quotation marks omitted).
Because Plaintiffs have failed to show that the newly discovered evidence was material
or would probably have changed the outcome of the arbitration, the Court finds that
they have failed to show the exceptional circumstances necessary to grant relief. As
such, Plaintiffs’ Motion is denied.
IV. CONCLUSION
For the reasons set forth above, Plaintiffs’ Motion to Vacate Confirmation of the
Arbitration Award Based on Newly Discovered Evidence (ECF No. 302) is DENIED.

6

21
Dated this __ day of July, 2014.
21st
BY THE COURT:

William J. Martínez
United States District Judge

7