Land and Buildings Investment Management, LLC et al v. Taubman et al
OPINION and ORDER GRANTING DEFENDANTS' 11 MOTION to Dismiss. Signed by District Judge John Corbett O'Meara. (TMcg)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
LAND AND BUILDINGS INVESTMENT
MANAGEMENT, LLC, a Delaware limited
Case No. 17-11576
Hon. John Corbett O=Meara
TAUBMAN CENTERS, INC., a Michigan
corporation, and Relief Defendants ROBERT
S. TAUBMAN, WILLIAM S. TAUBMAN,
and GAYLE TAUBMAN KALISMAN,
R&W-TRG LLC, TAUBMAN VENTURES
GROUP LLC, TG PARTNERS, and TF
OPINION AND ORDER GRANTING
DEFENDANTS= MOTION TO DISMISS
Before the court is Defendants= motion to dismiss, filed June 23, 2017,
which has been fully briefed. The court heard oral argument on August 10, 2017,
and took the matter under advisement. For the reasons explained below,
Defendants= motion is granted.
This action arises under ' 14(a) of the Securities and Exchange Act of 1934,
15 U.S.C. ' 78n(a). Plaintiff Land and Buildings Investment Management, LLC,
contends that Defendant Taubman Centers, Inc. issued a materially false or
misleading proxy statement in advance of the company=s June 1, 2017 annual
meeting of shareholders. Plaintiff also alleges that Defendant breached its articles
of incorporation. To remedy the alleged proxy violations, Plaintiff seeks a new
meeting or, alternatively, an order requiring Plaintiff=s nominees to be seated on the
board. See Amended Compl. (hereinafter ACompl.@) at & 1.
Plaintiff is an investment advisor that has purchased shares in Taubman
Centers, Inc. (ATaubman Centers@). Taubman Centers was founded by A. Alfred
Taubman and went public as a real estate investment trust in 1992. Taubman
Centers= only asset is approximately 71% of the Taubman Realty Group Limited
Partnership (ATRG@), a limited partnership that owns and manages shopping
centers. See Compl. at && 26-27. The remaining 29% of TRG is owned
predominately by members of the Taubman family, including siblings Robert S.
Taubman, William S. Taubman, and Gayle Taubman Kalisman, through the
Defendant entities R&W-TRG, LLC, Taubman Ventures Group, LLC, TG
Partners, and TF Associates, LLC. Id. at &&18-25, 27.
As a result of a restructuring in 1998, the partnership committee that
managed TRG=s assets was eliminated. See 1998 Form 8-K at 1; 1992 Prospectus
at 8.1 Management of TRG=s assets was moved to Taubman Centers= board. Id.
This move would have disenfranchised TRG partners (such as the Taubman
family), who had a right to four seats on TRG=s partnership committee. To offset
this loss of management rights at the TRG partnership level, Taubman Centers
created a new class of preferred stock B Series B stock B which was issued only to
TRG partners (other than Taubman Centers). See 1998 Form 8-K at 1; Compl. at
&& 29-30. Each share of Series B Stock entitles the holder to one vote on all
matters submitted to Taubman Centers= shareholders. Id. Series B stockholders
are not entitled to dividends or earnings, and the shares have a liquidation value of
$.001. Id. Series B stock is convertible to common stock at a ratio of 14,000
shares of Series B preferred stock for one share of common stock. Id.
words, Series B preferred stock gives TRG minority partners voting rights in
Taubman Centers, but has nominal economic value. See also 1998 Form 10-K
(approximately 31 million shares of Series B stock for an aggregate offering price
of $38,400). Taubman Centers= Series B preferred stock does not trade separately
A[T]his Court may consider the full text of the SEC filings, prospectus, analysts=
reports and statements >integral to the complaint,= even if not attached, without converting
the motion into one for summary judgment under Fed. R. Civ. P. 56.@ Bovee v. Coopers
& Lybrand C.P.A., 272 F.3d 356, 360B61 (6th Cir. 2001).
from units in the operating partnership (TRG); they are considered Astapled@
together. Compl. at &30.
For tax reasons, Taubman Centers= charter generally prohibits any single
person from owning more than 8.23 percent of the value of its capital stock
(common and preferred). See Restated Articles of Incorporation at 30; Compl. at
&& 30-34. The Taubman family constitutes a Aperson@ under the charter and
therefore cannot own more than 8.23 percent of value Taubman Centers= stock.
Taubman Centers= proxy materials state that the Taubman family=s ownership of
the Series B stock, with its nominal economic value, does not violate the 8.23
percent ownership limit. See 2017 Proxy Statement at 14.
Plaintiff contends that the Taubman family=s Series B stock in Taubman
Centers provides the Taubman family with 30% of the voting power of Taubman
Centers= shares. Plaintiff asserts that the value of the Series B stock should be
considered in conjunction with the value of the Taubman family=s partnership units
in TRG (to which it is Astapled@), and that together the total ownership interest
(30.2%) exceeds the 8.23 percent ownership limit. See Compl. at & 45.
Under the Taubman Centers= charter, stock owned in excess of the
ownership limit are AExcess Shares@ that may not be voted by the individual.
Plaintiff contends that the Taubman family=s Series B stock violates the 8.23
percent ownership limit and was improperly voted at the company=s June 1, 2017
Plaintiff alleges that Taubman Centers= proxy statement contains the
following false and misleading statements: (1) that Series B preferred stock has a
value of 1/14,000ths of the value of one share of common stock; (2) the Taubman
family=s ownership of Series B preferred stock does not violate the charter=s 8.23
percent ownership limit; (3) the Taubman family is entitled to an approximately
30% voting interest at the annual meeting, based upon their ownership of Series B
preferred stock. Plaintiff also claims that Taubman Centers violated its charter by
permitting the Taubman family to own more than 8.23 percent of the value of the
company=s outstanding capital stock. Plaintiff=s complaint alleges the following
counts: Count I, violation of Section 14(a) of the Exchange Act; Count II, breach
of contract based upon a breach of the charter; and Count III, declaratory
LAW AND ANALYSIS
Standard of Review
Defendants seek dismissal pursuant to Fed. R. Civ. P. 12(b)(6). To survive
a motion to dismiss, the plaintiff must allege facts that, if accepted as true, are
sufficient Ato raise a right to relief above the speculative level@ and to Astate a claim
to relief that is plausible on its face.@ Bell Atlantic Corp. v. Twombly, 550 U.S.
544, 570 (2007). See also Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949-50 (2009). AA
claim has facial plausibility when the plaintiff pleads factual content that allows the
court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.@ Id. at 1949. See also Hensley Manuf. v. Propride, Inc., 579
F.3d 603, 609 (6th Cir. 2009).
Section 14(a) Claim
Section 14(a) of the Exchange Act, 15 U.S.C. ' 78n(a), provides that it is a
violation of the Act to violate the rules promulgated by the SEC thereunder. Rule
14a-9 prohibits the solicitation of proxies by communications that are Afalse or
misleading with respect to any material fact.@ 17 C.F.R. ' 240.14a-9. The
purpose of section 14(a) is Ato promote the free exercise of the voting rights of
stockholders by ensuring that proxies would be solicited with explanation to the
stockholder of the real nature of the questions for which authority to cast his vote is
sought.@ Mills v. Electric Auto-Lite Co., 396 U.S. 375, 381 (1970) (citation
In order to establish a section 14(a) violation, the plaintiff must show A(1) a
proxy statement contained a material misrepresentation or omission which (2)
caused the plaintiff injury and (3) that the proxy solicitation itself, rather than the
particular defect in the solicitation materials, was an essential link in the
accomplishment of the transaction.@ Tracinda Corp. v. DaimlerChrysler AG, 502
F.3d 212, 228 (3d Cir. 2007).
Plaintiff alleges that the proxy statement misrepresented the value of Series
B preferred stock, that the Taubman family=s ownership of Series B stock does not
violate the 8.23% ownership limit, and that the Taubman family is entitled to a
30% voting interest. Plaintiff=s allegations are based upon its theory that Series B
stock should be considered significantly more valuable than 1/14,000 per share of
common stock and that, if Plaintiff=s valuation is used, the Taubman family=s
ownership of Series B stock would constitute more than 8.23% of the value of
Taubman Centers= stock, thus exceeding the ownership limit.
Plaintiff=s belief that Series B stock should be valued differently does not
render the proxy statement misleading. Taubman Centers is not required to adopt
or disclose Plaintiff=s legal theory about the correct valuation of Series B stock.
Taubman Centers has Ano duty to disclose legal theories as to how a given
transaction violated the law,@ nor is it necessary Ato characterize facts in a proxy
solicitation if the facts themselves are disclosed.@ Bolger v. First State Fin. Servs.,
759 F. Supp. 182, 194, 196 (D. N.J. 1991). See also Bertoglio v. Texas Int=l Co.,
488 F. Supp. 630, 649 (D. Del. 1980) (A[T]he federal proxy rules do not require
disclosure of a disputed legal theory regarding the legality of transactions approved
by the Board of Directors, nor do they require disclosure of one=s opponent=s
characterization of the facts.@) (citing Ash v. LFE Corp., 525 F.2d 215, 220 (3d Cir.
1975) and Golub v. PPD Corp., 576 F.2d 759, 765 (8th Cir. 1978)); Freedman v.
Barrow, 427 F. Supp. 1129, 1144 (S.D.N.Y. 1976) (AFailure to disclose a legal
theory with which those soliciting do not agree and which was not called to their
attention at the proper time does not violate Rule 14a-9.@).
The value of Series B stock and the voting power of the Taubman family is
set forth in Taubman Centers= April 20, 2017 proxy statement: A[O]ne share of
Series B Preferred Stock has a value of 1/14,000th 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.@ See Compl. at & 57.
The proxy statement also provides that the Taubman family is entitled to an
approximately 30% voting interest in Taubman Centers, based upon their
ownership of Series B preferred stock. Id. at & 58. Plaintiff=s contention that this
information is misleading is based upon its disputed legal theory that Series B
preferred stock should be valued differently, which Taubman Centers is not
obligated to disclose in its proxy statement.
Moreover, Taubman Centers issued a supplemental proxy statement,
advising shareholders of Plaintiff=s lawsuit and attaching the complaint.
See Defs.= Ex. 6 (Schedule 14A). The supplemental proxy statement was filed on
May 22, 2017, prior to the annual meeting on June 1, 2017. Thus, shareholders
received information regarding Plaintiff=s stock valuation theory and its allegations
regarding the charter breach before voting. To the extent Taubman Centers had an
obligation to disclose this information, it has done so, curing any deficiency in the
original proxy statement. See Bolger, 759 F. Supp. at 196. The court will
dismiss Plaintiff=s section 14(a) claim.
Breach of Contract Claim
Plaintiff=s breach of contract claim is based on the allegation that the
company=s charter is a contract and that the company breached it by permitting the
Taubman family to own in excess of 8.23 percent of the value of the outstanding
stock. However, the charter itself establishes that the liquidation value of Series B
preferred stock is $.001 per share and that Series B stock is convertible at a ratio of
14,000 to 1. See Restated Articles of Incorporation of Taubman Centers, Inc. at 5.
According to the proxy statement, the Board used this valuation formula to assign
nominal value to Series B stock and conclude that the Taubman family=s holdings
did not violate the ownership limit. Compl. at & 57. Plaintiff=s theory that the
Taubman family owns stock in excess of the 8.23 percent value limit requires the
court to ignore the Series B preferred stock valuation formula as set forth in the
Moreover, the charter provides that A[a]ny question regarding the application
of any of the provisions of this Subsection (d) of this Section 2 of this Article III
[including the ownership limit, total value, and market price of stock] . . . shall be
determined or resolved by the Board of Directors and any such determination or
resolution shall be final and binding on the Corporation, its shareholders, and all
parties in interest.@ Restated Articles of Incorporation at 35. See also id. at 29-30
(' 2(d)(i)) and 33 ('2(d)(ii)(f)(3)). In other words, the Board=s determination that
the value of the Taubman family=s stock has not exceeded the ownership limit is
final and binding on shareholders, including Plaintiff.
Plaintiff attempts to avoid this result by arguing that the Board=s
determination of value is a matter that is outside the pleadings and that Plaintiff=s
value theory must be accepted as true.2 But Plaintiff=s amended complaint quotes
the 2017 Proxy Statement, in which the company provides its determination of the
value of Series B stock:
The Series B Preferred Stock is convertible into shares of
Plaintiff also points out that the charter requires that the Board must determine
the market price of Series B stock Ain good faith.@ Plaintiff=s complaint, however, makes
no allegation that the Board failed to act in good faith.
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 1/14,000th of the value of one share of common
stock. Accordingly, the foregoing [Taubman family]
ownership of Voting Stock does not violate the
Ownership Limitations set forth in the Articles.
Compl. at &57. The Amended Complaint also alleges that the company considers
the Series B stock to have Anominal value.@ Compl. at & 43. The Board=s
valuation of Series B stock is not, therefore, outside of the pleadings, but is
expressly alleged. Moreover, this Anominal@ valuation is consistent with the
formula set forth in the charter, the express terms of which preclude Plaintiff=s
breach of contract claim. See KSR Int=l Co. v. Delphi Auto Sys. LLC, 523 Fed.
Appx. 357, 362 (6th Cir. 2013) (affirming dismissal when the plaintiff=s claim was
Adirectly refuted by the terms of the very contractual agreement its breach of
contract claim is based on@). Plaintiff=s valuation theory B that a share of Series B
stock is worth significantly more than 1/14,000th of a share of common stock and
that the value of TRG partnership units must be considered when valuing Series B
stock B is directly contradicted by Taubman Centers= charter.
Accordingly, the court will dismiss Plaintiff=s breach of contract claim.
Because no substantive claim remains, the court will also dismiss Plaintiff=s
declaratory judgment claim.
IT IS HEREBY ORDERED that Defendants= motion to dismiss is
Dated: August 16, 2017
s/John Corbett O’Meara__
John Corbett O=Meara
United States District Judge
Certificate of Service
The undersigned certifies that the foregoing document was served upon counsel of
record and any unrepresented parties via the Court’s ECF System to their
respective email or First Class U.S. Mail addresses disclosed on the Notice of
Electronic Filing on August 16, 2017.
Case Manager Generalist
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