Slipher v. Washington Prime Group, Inc. et al

Filing 64

OPINION AND ORDER granting 52 Motion to Dismiss for Failure to State a Claim. Signed by Judge James L. Graham on 3/27/24. (ds)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION
In re: Washington Prime Group, Inc.
Securities Litigation

:

Case No. 2:21-cv-2757

:

Judge Graham

:

Magistrate Judge Jolson

Opinion and Order
Plaintiffs bring this securities fraud class action under Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934, 15 U.S.C §§ 78j(b) and 78t(a). Plaintiffs purchased publicly-traded
securities of Washington Prime Group, Inc. (WPG), which owned and operated shopping malls
across the United States. WPG filed for bankruptcy in June 2021.
Being a mall owner in the 2010s was a challenge, as online sales grew and a new generation
of consumers had relatively little interest in spending time in traditional malls. See Compl. (Doc. 47),
¶¶ 4–6, 51–55. Those trends prompted WPG in 2016 and 2017 to formulate a business plan under
which it would engage in efforts to redevelop its mall properties. Id., ¶¶ 7, 69–70. Plaintiffs allege
that WPG made false statements about the yields or returns which WPG stood to gain from its
redevelopment efforts. WPG often cited 9-10% as the yield it obtained or expected to obtain, but
plaintiffs contend that “the true yields for WPG’s projects were only half what WPG reported, or 45%.” Id., ¶ 120. Plaintiffs also allege that defendants made false statements about securing relief on
WPG’s debt covenants as it sought to navigate the liquidity crunch it faced in the wake of the
COVID-19 pandemic.
This matter is before the Court on defendants’ motion to dismiss. The motion raises a
number of legal issues, including loss causation, protection under the safe harbor rule, and whether
certain statements were no more than vague expressions of corporate optimism. For the reasons
that follow, the Court grants the motion to dismiss.
I.

Factual Background
The following recitation of facts and allegations is derived from the Consolidated Class

Action Complaint (the “Complaint”) and certain exhibits submitted by the parties. The exhibits
consist of WPG’s public filings with the United States Securities and Exchange Commission and
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filings made in WPG’s bankruptcy proceedings in the United States Bankruptcy Court for the
Southern District of Texas. The parties do not dispute the authenticity of the exhibits, and the
Court may take judicial notice of the fact that the filings were made and what statements were made
in them. 1 See In re Omnicare, Inc. Sec. Litig., 769 F.3d 455, 467 (6th Cir. 2014) (holding that a court
may take judicial notice of the existence of SEC filings but “could not consider the statements
contained in [SEC filings] for the truth of the matter asserted” at the motion to dismiss stage);
Lovelace v. Software Spectrum Inc., 78 F.3d 1015, 1018 (5th Cir. 1996) (holding that a court may take
judicial notice of SEC filings, though “[s]uch documents should be considered only for the purpose
of determining what statements the documents contain, not to prove the truth of the documents’
contents”).
A.

The Parties

Defendant WPG spun off from the Simon Property Group in May 2014 as a self-managed
real estate investment trust (REIT) which owned real estate. Its holdings consisted of a portfolio of
about 90 to 100 enclosed and open-air malls. Common stock of WPG traded on the New York
Stock Exchange. WPG also issued preferred shares.
WPG was incorporated in Indiana and had its principal place of business in Columbus,
Ohio. Defendant Louis Conforti was the Chief Executive Officer of WPG. Defendant Mark Yale
was Chief Financial Officer, and defendant Melissa Indest served as Executive Vice President.
The plaintiff class is defined as all non-insider and non-control persons who: (1) purchased
WPG common stock, Series H preferred shares, and Series I preferred shares, or purchased call
options or sold put options, from February 22, 2018 through March 3, 2021; and (2) held such
securities through at least one of the alleged corrective disclosures on November 6, 2020, February
15, 2021 and March 4, 2021. Compl, ¶¶ 1, 244, 252, 254. The Court will discuss the corrective
disclosures in more detail below.

The parties have not attached each and every document which WPG filed with the SEC during the
class period. Plaintiffs attached one of WPG’s filings to the Complaint as a representative
“example.” See Compl., ¶ 95, Ex. A. Defendants have attached several more SEC filings to their
motion to dismiss. See Doc. 53. Because WPG’s SEC filings are of public record and because the
parties have made them integral to their claims and defenses, the Court may take judicial notice of all
of WPG’s SEC filings during the class period. See Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42,
47 (2d Cir. 1991) (holding that “when a district court decides a motion to dismiss a complaint
alleging securities fraud, it may review and consider public disclosure documents required by law to
be and which actually have been filed with the SEC”); Buckner v. JP Morgan Chase, No. 1:17-CV-302,
2017 WL 6594018, at *6 n.2 (S.D. Ohio Dec. 22, 2017).
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B.

REITs and Financial Metrics

The Complaint contains allegations about the nature of REITs and the metrics which
investors find relevant.

REITs “are tax-advantaged companies that own or finance income-

producing real estate. To maintain their tax advantage, REITs must distribute 90% of their income
as dividends.” Id., ¶ 40.
Because “REITs are income investments,” “when evaluating REIT investments, investors
focus on metrics that show how much cash the operator is regularly generating from its operations
and whether these cash flows are safe.” Id., ¶ 41.
“Funds From Operations, or FFO, is a key metric for REIT investors. FFO is based on net
income but eliminates certain accounting changes that are not applicable to REITs.” Id., ¶ 42.
“Calculating FFO begins with net income” and then, among other adjustments, “accounting gains or
losses from property sales” are removed, because such sales are nonrecurring, and any interest
income is removed, because “REITs are not in the business of lending.” Id.
“Net operating income, or NOI, measures all income from properties minus all reasonably
necessary operating costs. NOI excludes principal and interest payments on loans, capital
expenditures, depreciation, amortization, and taxes.” Id., ¶ 43.
“Return on invested capital, or ROIC, measures the profitability of the REIT’s investment.
It is measured as net annual income minus dividends divided by total debt plus equity. It can be
measured for individual projects, groups of projects, or for whole companies. . . . ROIC is similar to
Return on Investment, or ROI.” Id., ¶ 44.
Particularly important to this case is the term “yield.” “To measure success, Defendants
focused investors’ attention on a metric called yield.” Id., ¶ 10. “While yield can be measured in
different ways, Defendants emphasized on earnings call[s] that by yield, they meant ROIC (or
equivalently ROI).” Id., ¶ 93. Yield thus referred to annual income generated by a redevelopment
project divided by the costs of the project. Id., ¶¶ 10, 93.
C.

WPG’s Plans for Mall Redevelopment

Defendant Conforti began stating in late 2016 and early 2017 that redevelopment would be
the key to WPG’s success. Id., ¶¶ 70–72. WPG would need to get out of the passive “rentcollecting” business if it wanted to survive the “retail apocalypse,” whereby online sales were
claiming a growing percentage of overall retail sales and younger consumers were spurning
traditional malls. Id., ¶¶ 51–55, 70–73.
In a struggling sector, WPG sought to distinguish its malls with the following plan:
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(1) acquire[] malls in smaller cities that are the only mall in town; and (2) redevelop[]
the malls to replace struggling older stores like Sears and Macy’s or youth fashion
stores like Forever 21 with vibrant shops including brew pubs, athletic facilities, and
higher-end sit-down restaurants. Guests would visit WPG malls not just to shop but
also to engage in activities. By substituting these main street type businesses,
Defendants claimed, WPG’s malls would serve as what it called “dominant town
centers” with “curated” offerings.
Id., ¶ 7.
Conforti characterized the plan as WPG’s “thesis.” Id., ¶ 58 (quoting a Sept. 15, 2020 public
statement made by Conforti). WPG would redevelop malls in strong secondary markets to include
“more vibrant community spaces like brew pubs, gyms, or dog runs, as well as higher-end food
options than traditional mall food courts. The mall common areas might also host concerts or
similar activities.” Id., ¶ 59. WPG wanted its malls, which it preferred to call “retail venues,” to
provide “curated” experiences based on local preferences. Id., ¶¶ 61–67.
In a first quarter earnings call in 2017, Conforti stated, “Redevelopment is crucial . . . as we
promote our hybrid asset model of combining Enclosed and Open Air [strip mall] formats into
vibrant town centers.” Id., ¶ 71. He stated that WPG had 45 redevelopment projects it was
undergoing, with “projected average ROIs” of 9.5%. Id.
D.

The Allegedly Inflated Yield Numbers
1.

The Investment Committee

WPG had an Investment Committee which met on a near monthly basis. The individual
defendants were among the individuals who sat on the Committee, which reviewed “all significant
redevelopment projects proposed by WPG management employees.” Id., ¶ 101. Generally this
meant reviewing all projects costing more than $1 million. Id.
The Committee required that extensive information for each proposed redevelopment
project be presented in approval request memoranda and in deal sheets. Id., ¶¶ 102, 105. The deal
sheets contained detailed information about the various costs and projected returns of a project. Id.,
¶ 105.
For projects the Committee approved, the members signed approval forms and meeting
minutes, which included “a summary of the principal economic terms of the approved transactions,
including project costs and yields.” Id., ¶ 103.
Plaintiffs allege that defendants Indest and Yale, among others, had a practice of meeting
after the Investment Committee meetings “to make ‘manual adjustments’ to project costs and yields
as approved by the Investment Committee to make them look more profitable.” Id., ¶ 110. The
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adjustments included overstating the revenues to be generated by a project and understating the
costs. Id., ¶ 114. The alleged goal of the adjustments was to make the yield “as close to 10% as
possible.” Id., ¶ 112.
2.

Overstating Income

Plaintiffs allege that defendants used several methods to overstate income. One concerned
“co-tenancy cures” for non-anchor stores. Under a typical co-tenancy provision in a lease, a nonanchor store’s rent is reduced if an anchor space becomes empty or is leased to a competitor of the
lessee. Id., ¶ 125. Because many of WPG’s properties lost anchors tenants (the bankruptcy of Sears
being a major factor, id., ¶ 84), WPG’s redevelopment strategy often included bringing in a new
anchor. When calculating the income expected from redevelopment, WPG included the “curing”
effect that it would have on bringing non-anchor leases back to full rent. Id., ¶ 128. Plaintiffs do
not contest the legitimacy of including that effect in the calculation; however, they allege that
defendants made a practice of double-counting the co-tenancy cure. For example, if bringing in an
anchor tenant cured the monthly rent for a non-anchor and thereby raised the lowered rate of $600
back to a full rate of $1,000, then the curing effect would be $400. Plaintiffs allege that defendants
would improperly double the $400 amount when calculating anticipated income.

Id., ¶ 129.

According to plaintiffs, this practice of double-counting co-tenancy cures had the effect of
overstating expected annual revenues by a total of $5 to $10 million over the course of any two-year
period. Id., ¶ 135.
A second way WPG allegedly overstated income was by including speculative leases.
Plaintiffs allege that WPG would include rent from anticipated or potential tenants in a redeveloped
mall, even though the parties were only in preliminary talks and had not yet signed letters of intent.
Id., ¶ 140. In addition, when WPG found new anchor tenants, it would factor in the expected bump
in non-anchor tenants which the anchor would draw. WPG included anticipated rents even though
negotiations had not begun with potential non-anchor tenants. Id., ¶¶ 142, 150–51. This practice of
including speculative leases had the effect of overstating expected annual revenues by a total of
about $10 million over the course of any two-year period. Id., ¶ 162.
WPG also allegedly overstated income by not taking a vacancy discount for non-credit
tenants (defined as those business which lack an investment-grade rating by a major credit-rating
agency). Such tenants are generally on less-secure financial footing and carry a greater risk of
creating a vacancy. Industry standards call for a “vacancy provision,” which reduces expected rent
income from non-credit tenants by 1-5%. Id., ¶ 167. Plaintiffs allege that WPG failed to take a
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vacancy provision for non-credit tenants, which caused WPG to overstate expected annual revenues
by a total of $4 to $5 million over the course of any two-year period. Id., ¶ 162.
Finally, for one redevelopment project – the Town Center at Aurora in Denver, Colorado –
WPG allegedly included a speculative form of rent known as “percentage rent.”

Id., ¶ 174.

Percentage rent refers to a lease provision under which the tenant must pay a percentage of its sales
as rent if sales exceed a certain threshold. Because such provisions apply only if a store is popular,
plaintiffs contend that considering percentage rate involves speculation. Plaintiffs allege that WPG
used percentage rent to inflate expected income from the Aurora project by over $450,000. Id.
3.

Understating Costs

Plaintiffs allege that defendants understated costs by not counting certain expenditures to
modernize existing tenant spaces. When WPG brought in a new anchor tenant, the anchor tenant
typically demanded that WPG modernize the space. Id., ¶ 175. Existing tenants in turn would
sometimes demand modernization of their part of the mall, so that it would not be viewed as
“second class.” Id., ¶ 176. Plaintiffs allege that WPG should have, but did not, include the costs of
modernizing other parts of a mall in calculating yield because those costs were driven by the anchor
redevelopment. In one instance, those costs approached $3 million and would have significantly
decreased yield had they been included. Id., ¶ 178 (Southern Park Mall in Youngstown, Ohio).
Plaintiffs next allege that with respect to two malls, defendants did not include as costs the
amounts WPG spent to purchase properties from two companies which had owned their stores
outright. Id., ¶¶ 179–84 (Aurora and Polaris Fashion Place in Columbus, Ohio). Plaintiffs allege
that purchasing the properties was part of the redevelopment plans and WPG’s failure to include the
purchase prices meant that costs were understated by over $5 million for each mall. Id., ¶ 179.
A third way in which WPG allegedly understated costs was by counting profits from what
plaintiffs call unrelated land sales. Plaintiffs point again to Aurora as an example. WPG sold parcels
that were not designated for mall development and made a $1.5 million profit. It reduced the
estimated costs of redevelopment by $1.5 million. Plaintiffs allege that the land sale was unrelated to
the redevelopment plans and should not have been considered in the cost estimate. Id., ¶¶ 187–90.
Finally, plaintiffs allege that WPG improperly classified a tax abatement for Southern Park
Mall. From an accounting standpoint, a tax abatement can be subtracted from the costs of a project.
But the abatement should be discounted to reflect that “the funds could be productively invested
elsewhere during the intervening time.” Id., ¶ 194. Plaintiffs allege that WPG failed to discount the

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value of the abatement, which resulted in WPG understating the estimated costs for Southern Park
by $1.3 million. Id., ¶ 199.
E.

The Alleged False Statements Regarding Yield

The Complaint identifies eleven statements which were allegedly false.

Seven of the

statements were made by Conforti or Yale during public earnings calls or presentations, and the
statements related to overall yield for WPG’s development efforts and to how WPG calculated, at
least in part, the yield numbers. The remaining four statements appeared in SEC filings and
contained yield estimates for specific redevelopment projects.
1.

Overall Yield Statements

The first alleged false statement was made by Conforti on February 22, 2018 (the beginning
of the class period). It came during an earnings call 2 covering the fourth quarter of 2017. Conforti
stated that WPG had “current redevelopment of 37 projects ranging between $1 million and $60
million with an estimated return on invested capital of 10%.” Id., ¶ 255. Plaintiffs allege that the
statement was false because WPG’s internal numbers showed a “significantly lower” yield estimate,
which they had subjected to manual adjustments in order to arrive at 10%. Id., ¶ 256.
In response to a question posed to him at a March 7, 2018 conference, Conforti stated that
“we get a 9.5%” in direct return. Id., ¶ 257. He said that “we don’t include adjacent space when we
factor in . . . for redevelopment.” Id. Plaintiffs allege that the yield number was inflated and that
WPG did factor in the effect which redevelopment would have on improving rent on adjacent
spaces.
In an April 26, 2018 earnings call, Conforti said WPG had 34 current projects with an
“estimated return” of 10%, “not including the benefit to adjacent unproductive space.” Id., ¶ 259.
Again, plaintiffs allege that the yield number was inflated and that WPG had engaged in speculation
by factoring in the effect which redevelopment would have on improving rent for adjacent spaces.
At an REIT conference on June 5, 2018, Conforti responded to a question about leases by
stating that “we’re actually seeing quantified at about 9.5% return.” Id., ¶ 261. He added that WPG
does not “play around with the fluffiness of, okay, an unproductive space . . . . “It’s
An earnings call is “a quasi-public conference call held by a company’s management” after the
release of quarterly or annual financial results. Shupe v. Rocket Companies, Inc., 660 F.Supp.3d 647, 660
(E.D. Mich. 2023) (internal quotation marks omitted). Management discusses the company’s
financial performance and answers questions from participants, including financial analysts,
investors, and the media. Id.
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numerator/denominator. . . . [W]e’re not in the speculative redevelopment business.” Id. Plaintiffs
allege that the yield number was false and that the other statements were misleading because WPG
speculated by including the effects of redevelopment on unproductive spaces when they calculated
yield estimates.
In an earnings call for the third quarter of 2018, Conforti stated that WPG is “extraordinarily
rigorous pursuant to our investment methodology. . . . There is no taking indirect adjacencies.” Id.,
¶ 263. Plaintiffs allege that the statement was misleading because WPG was not rigorous in
calculating yield, but manipulated income and costs to make the yield as close to 10% as possible.
The alleged manipulation included factoring in speculative effects on adjacent spaces.
In a February 21, 2019 earnings call, Conforti stated that if WPG were to get less than 9%
return on a project, “we would not develop.” Id., ¶ 265. Yale stated that the yield number factors in
“rents, maybe some cotenancy cure.” Id. Plaintiffs allege that WPG was engaging in redevelopment
despite knowing that yield estimates were below 9%. They further allege that Yale’s statement was
misleading because WPG included speculative rents and double-counted cotenancy effects.
Finally, at an REIT investor conference on June 4, 2019, Conforti stated that “there is a
direct return on invested capital of 8%, 9%, maybe 9.5%.”

Id., ¶ 267.

Yale stated that

redevelopment was not based on speculation but was “driven by signed leases.” Id. Plaintiffs allege
that the yield numbers were inflated and were in fact based on speculation, including speculative
leases and “percentage rent.”
2.

Individual Projects

The next group of allegedly false statements appeared in Supplemental Information Reports
which accompanied Form 8-Ks filed by WPG with the SEC. The first alleged false statement
concerned the Mall at Fairfield Commons in Dayton, Ohio. WPG reported an estimated yield of 911% for the redevelopment project at that mall. The statement was made in filings dated October
25, 2018, February 21, 2019, April 25, 2019, July 25, 2019, and October 24, 2019. Plaintiffs allege
that the statement was false because WPG’s true expected yield was 6.6%. Id., ¶¶ 269–70.
For the Polaris Fashion Place redevelopment project, WPG reported an estimated yield of 45% in Supplemental Information Reports filed with the SEC on February 27, 2020, May 8, 2020,
August 11, 2020, and November 5, 2020. Plaintiffs allege that the statement was false because WPG
had improperly excluded significant costs and the true yield was 1.92%. Id., ¶¶ 271–72.
For the Southern Park redevelopment project, WPG reported an estimated yield of 8-9% in
Supplemental Information Reports filed on February 27, 2020, May 8, 2020, August 11, 2020, and
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November 5, 2020. Plaintiffs allege that the statement was false because WPG’s internal yield
estimate was no more than 4%. Id., ¶¶ 273–74.
Finally, for the Town Center at Aurora redevelopment project, WPG reported an estimated
yield of 5-6% in Supplemental Information Reports filed on February 27, 2020, May 8, 2020, August
11, 2020, and November 5, 2020. Plaintiffs allege that the statement was false because WPG’s
internal yield estimate was 2.04%. Id., ¶¶ 273–74.
F.

Debt Covenants
1.

WPG’s Cash Flow and Debt

Income from WPG’s operating activities – the rent which it collected from leases – was its
primary source of cash flow. Another source was property sales. Id., ¶¶ 200, 202, 206. As a REIT,
WPG had to distribute 90% of its income as dividends.
The COVID-19 pandemic strained WPG’s finances, reducing its cash flow from operating
activities “from $209.3 million in 2019 to $78.6 million in 2020.” Id., ¶ 202. Dividends, which WPG
paid quarterly, dropped in correspondingly dramatic fashion. In 2019, WPG paid out a total of
$237.5 million in dividends. In the first quarter of 2020, WPG cut dividends in half (to $0.125 per
share) and paid out $42.3 million. It did not pay dividends for the remainder of 2020. Id., ¶ 203.
Taking on debt was a way to provide liquidity. As of December 31, 2019, WPG had issued
publicly-traded bonds with a face value of $720 million. It also had credit facilities consisting of
term loans of $350 million and $340 million and a revolving facility for borrowing up to $650
million. On April 14, 2020, WPG withdrew $120 million from the Revolver. Id., ¶¶ 220–21.
Plaintiffs allege that after WPG borrowed from the Revolver, it could borrow no more
because its debt was subject to covenants. The bonds had covenants requiring that WPG’s overall
debt not exceed 60% of its total assets and that WPG’s secured debt not exceed 40% of its total
assets. Remedies for breach of the bond covenants included acceleration of maturity. A default
could be waived by a two-thirds vote of the bond holders. Id., ¶¶ 225–26. At the end of 2019,
WPG’s debt was 56.9% of its total assets. Id., ¶ 223.
The term loans and Revolver had similar covenants. Though these covenants measured
total assets in a slightly different manner from the bond covenants, they too required that WPG’s
overall debt not exceed 60% of total assets and secured debt not exceed 40%. Id., ¶ 228.
In its May 7, 2020 Form 10-Q, WPG disclosed:
We are engaged in discussions with our unsecured creditors and based upon these
discussions we believe, to the extent that the impact of COVID-19 results in
potential non-compliance with financial covenants, it is probable that we will remain
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compliant with such covenants through some combination of waivers, modifications
or other amendments to the related agreements. However, no assurances can be
made in this regard, and if we are unable to agree on the terms of such waivers or
changes, this could create substantial doubt about our ability to continue as a going
concern through May 7, 2021.
Id., ¶ 230.
On August 17, 2020, WPG announced that it had entered into a modification of the credit
facilities by signing Covenant Restructuring Agreements. Under the Agreements, the covenants on
the credit facilities were loosened in exchange for WPG providing collateral made up of previously
unencumbered property. Id., ¶ 236.
According to the Complaint, WPG made an effort to obtain covenant relief on the bonds as
well. Ultimately, the senior noteholders were too “disorganized” and WPG was unable to obtain
relief. Id., ¶ 236. The Complaint does not indicate when the process of WPG attempting to obtain
relief on the bond covenants took place.
2.

The Alleged False Statements Regarding Covenants

Plaintiffs allege that on two occasions defendants made false statements relating to the
modification of WPG’s covenants. The first occurred in an August 11, 2020 earnings call. 3 Yale
stated that WPG was on track to receive lender approval of a modification to the credit facilities.
“[T]he modification should provide us with a bridge to the other side of the pandemic.” Compl., ¶
277. Yale added, “[W]e believe the company should have the necessary flexibility that will allow us to
navigate and maintain compliance with our modified credit facilities and bond covenants for the
foreseeable future.” Id.
Plaintiffs allege that Yale’s remarks were false because WPG had not modified its bond
covenants (only the credit facilities) and Yale knew WPG could not get to “the other side of the
pandemic.” Even if WPG had obtained relief on the credit facilities, WPG could not borrow money
because it had not modified the bond covenants. Plaintiffs argue that this left WPG unable to
obtain the cash it needed to survive.
The second occasion was at a real estate conference on September 15, 2020. Responding to
a question about WPG modifying its credit facilities, Yale said he was pleased to “have the support
of our debt partners” and have “a bridge to get through the other side of the pandemic.” Id., ¶ 279.
The Complaint does not identify a date for the earnings call, but simply calls it the “Q2 2020
Earnings Call.” Id., ¶ 277. According to defendants (and not disputed by plaintiffs), the earnings
call took place on August 11, 2020. See Defs.’ Mot. to Dismiss (Doc. 52), p. 20.
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“[T]here’s ample flexibility in the modification for us to continue to reinvest through our
redevelopment, which is most critical.” Id. Conforti added that WPG had the support of its
banking partners and debt partners. Id.
Plaintiffs allege that these remarks were false because WPG had not received any changes to
its bond covenants and could no longer borrow money. According to plaintiffs, WPG did not have
the support of its bond holders and lacked the ability to withstand the pandemic.
G.

Corrective Disclosures

The Complaint alleges that the value of WPG’s stock fell following three public disclosures.
The first came during a November 6, 2020 earnings call. 4 Yale announced that “the company did
exceed the thresholds for several of the leverage bond covenants as at the end of the third quarter.”
Id., ¶ 241. Yale explained the covenants would be tripped only if WPG sought to incur additional
debt and that “the company has no current plans to incur additional debt.” Id. On the same day,
WPG’s stock price fell from a previous close of $5.72 per share to close at $5.04, a decrease of $0.68
per share. Id., ¶ 245.
The second disclosure occurred on February 15, 2021, the day on which WPG owed an
interest payment of $23.2 million on the bonds. WPG announced that it had not paid the interest
payment. Id., ¶ 252. On February 16, 2021, WPG’s stock fell from its previous close of $12.06 per
share to close at $7.49, down $4.57 (38%). On February 17, the share price fell to $6.09, down
$1.40. Id., ¶ 253.
The third disclosure came on March 4, 2021 when Bloomberg reported that WPG was
securing bankruptcy financing. See id., ¶ 254. The price of WPG’s stock fell from its previous close
of $6.58 to close at $2.51, down $4.07. Id.
H.

Fraud on the Market – Presumption of Reliance

According to the Complaint, the market for WPG’s securities was “open, well-developed
and efficient at all relevant times.” Id., ¶ 287. Its shares were traded on the NYSE, and 23.7 % of its
float traded every week.

WPG regularly filed public reports with the SEC and regularly

communicated with the investing public and financial press. Three securities analysts followed
WPG and wrote publicly available reports about WPG. Id., ¶ 289.

The Complaint twice identifies 2021 as the year in which the November 6 disclosure occurred. Id.,
¶¶ 241, 244. This is likely an error because November 6, 2021 post-dates WPG’s bankruptcy filing
in June 2021. Elsewhere, the Complaint says that 2020 was the year. Id., ¶ 24.
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Plaintiffs allege that the market for WPG’s securities “promptly digested current information
regarding [the company] from all publicly available sources and reflected such information in [its]
share price.” Id., ¶ 290. It is further alleged that members of the plaintiff class “purchased or
otherwise acquired the Company’s securities relying upon the integrity of the market price of
[WPG’s] securities and market information relating to [WPG].” Id., ¶ 287.
The Complaint asserts that a class-wide presumption of reliance applies. See Basic Inc. v.
Levinson, 485 U.S. 224 (1988) (in an efficient market, class members are presumed to have relied on
materially false representations which artificially inflated share price). Defendants do not dispute the
applicability of the presumption for purposes of the motion to dismiss.
I.

Causes of Action

The Complaint asserts two causes of action, the first under Section 10(b) of the Securities
Exchange Act of 1934, 15 U.S.C § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5. The Complaint
alleges that defendants defrauded the investing public in connection with the sale of WPG’s
securities. Defendants are alleged to have knowingly made false representations which caused the
price of WPG’s stock to be artificially inflated. The market price of WPG’s securities declined upon
the release of the three corrective disclosures outlined above. Members of the plaintiff class
suffered injury when the share price decreased.
The second cause of action is for control person liability under Sections 20(a) of the Act, 15
U.S.C § 78t(a). The individual defendants allegedly occupied positions of control and authority over
WPG and caused WPG to issue false and misleading information to the investing public.
II.

Motion to Dismiss Standard of Review
Federal Rule of Civil Procedure 8(a) requires that a pleading contain a “short and plain

statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). When
considering a motion under Rule 12(b)(6) to dismiss a pleading for failure to state a claim, a court
must determine whether the complaint “contain[s] sufficient factual matter, accepted as true, to
‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
(quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A court should construe the
complaint in the light most favorable to the plaintiff and accept all well-pleaded material allegations
in the complaint as true. Iqbal, 556 U.S. at 679; Erickson v. Pardus, 551 U.S. 89, 93-94 (2007);
Twombly, 550 U.S. at 555-56.

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Despite this liberal pleading standard, the “tenet that a court must accept as true all of the
allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the
elements of a cause of action, supported by mere conclusory statements, do not suffice.” Iqbal, 556
U.S. at 678; see also Twombly, 550 U.S. at 555, 557 (“labels and conclusions” or a “formulaic recitation
of the elements of a cause of action will not do,” nor will “naked assertion[s]” devoid of “further
factual enhancements”); Papasan v. Allain, 478 U.S. 265, 286 (1986) (a court is “not bound to accept
as true a legal conclusion couched as a factual allegation”). The plaintiff must provide the grounds
of his entitlement to relief “rather than a blanket assertion of entitlement to relief.” Twombly, 550
U.S. at 556 n.3. Thus, “a court considering a motion to dismiss can choose to begin by identifying
pleadings that, because they are no more than conclusions, are not entitled to the assumption of
truth.” Iqbal, 556 U.S. at 679.
When the complaint does contain well-pleaded factual allegations, “a court should assume
their veracity and then determine whether they plausibly give rise to an entitlement to relief.” Iqbal,
556 U.S. at 679. “A 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 678. Though “[s]pecific facts are not necessary,” Erickson, 551 U.S. at 93, and though Rule 8
“does not impose a probability requirement at the pleading stage,” Twombly, 550 U.S. at 556, the
factual allegations must be enough to raise the claimed right to relief above the speculative level and
to create a reasonable expectation that discovery will reveal evidence to support the claim. Iqbal, 556
U.S. at 678-79; Twombly, 550 U.S. at 555-56. This inquiry as to plausibility is “a context-specific task
that requires the reviewing court to draw on its judicial experience and common sense. . . . [W]here
the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct,
the complaint has alleged – but it has not ‘show[n]’ – ‘that the pleader is entitled to relief.’” Iqbal,
556 U.S. at 679 (quoting Fed. R. Civ. P. 8(a)(2)).
III.

Discharge of Plaintiffs’ Claims against WPG
WPG filed for Chapter 11 bankruptcy on June 13, 2021 in the United States Bankruptcy

Court for the Southern District of Texas. See In re: Washington Prime Group, Inc. et al., Case No. 2131948 (Bankr. S.D. Tex.). On September 3, 2021, the Bankruptcy Court entered a Confirmation
Order approving a Plan of Reorganization.
The Bankruptcy Court discharged plaintiffs’ pre-petition causes of action, including their
securities fraud claims here, against debtor WPG. See Doc. 53-1, p. 12, ¶ 14; Doc. 53-2, Art.
13

III(B)(13). See also 11 U.S.C. § 510(b) (the claims of a purchaser of stock in a corporation which files
for bankruptcy are subordinate to the claims of general unsecured creditors); 11 U.S.C. § 1141(d)
(the confirmation of a plan “discharges the debtor from any debt that arose before the date of such
confirmation”).
Though plaintiffs cannot pursue recovery against WPG, they may proceed against the
individual defendants, who were officers of WPG. The Complaint acknowledges that plaintiffs
bring suit “to the extent of available insurance.” Compl., ¶ 36. The Bankruptcy Court expressly
allowed plaintiffs here to proceed with a class action suit to seek recovery under WPG’s directors
and officers insurance policy. See Doc. 53-1, p. 78, ¶ 80.
IV.

Elements of a Section 10(b) Claim and Special Pleading Standards
Section 10(b) of the Securities Exchange Act and Rule 10b–5 prohibit “fraudulent, material

misstatements or omissions in connection with the sale or purchase of a security.”

Morse v.

McWhorter, 290 F.3d 795, 798 (6th Cir. 2002). “To state a securities fraud claim under Section 10(b),
a plaintiff must allege, in connection with the purchase or sale of securities, the misstatement or
omission of a material fact, made with scienter, upon which the plaintiff justifiably relied and which
proximately caused the plaintiff’s injury.” Frank v. Dana Corp., 547 F.3d 564, 569 (6th Cir. 2008)
(internal quotation marks omitted).
The United States Supreme Court has held that there six essential elements of a § 10(b)
action: “(1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection
between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon
the misrepresentation or omission; (5) economic loss; and (6) loss causation.” Stoneridge Inv. Partners,
LLC v. Sci.-Atlanta, 552 U.S. 148, 157 (2008); see also In re Omnicare, Inc. Sec. Litig., 769 F.3d 455, 469
(6th Cir. 2014).
Special pleading requirements apply in securities fraud cases. Under Rule 9(b), the complaint
must: “(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker,
(3) state where and when the statements were made, and (4) explain why the statements were
fraudulent.” Frank., 547 F.3d at 570 (internal quotation marks omitted).
To establish scienter, a plaintiff must show that the defendant acted with an “intent to
deceive, manipulate, or defraud.” Tellabs, Inc. v. Makor Issues & Rts., Ltd., 551 U.S. 308, 319 (2007)
(internal quotation marks omitted). The Private Securities Litigation Reform Act (PSLRA) “imposes
additional and more exacting pleading requirements for pleading scienter in a securities fraud case.”
14

Id. (internal quotation marks omitted). The complaint must “specify each statement alleged to have
been misleading,” “the reason or reasons why the statement is misleading,” and “state with
particularity facts giving rise to a strong inference that the defendant acted with the required state of
mind.” 15 U.S.C. § 78u–4(b)(1), (2).
In Tellabs, the Supreme Court instructed district courts to follow a three-step analysis when
considering a motion to dismiss a private securities fraud complaint. First, “courts must, as with any
motion to dismiss for failure to plead a claim on which relief can be granted, accept all factual
allegations in the complaint as true.” Tellabs, 551 U.S. at 322. Second, “courts must consider the
complaint in its entirety, as well as other sources courts ordinarily examine when ruling on Rule
12(b)(6) motions to dismiss, in particular, documents incorporated into the complaint by reference,
and matters of which a court may take judicial notice.” Id. Third, if scienter is put at issue on a
motion to dismiss, the court “must take into account plausible opposing inferences” and determine
if the inference of scienter is such that “a reasonable person would deem the inference of scienter
cogent and at least as compelling as any opposing inference one could draw from the facts alleged.”
Id. at 323–24.
V.

Statements Regarding Overall Yield and Methodology
A.

Allegations

The Complaint alleges that Conforti and Yale combined to make seven false statements
between February 22, 2018 and June 4, 2019. They made the statements in public during earnings
calls or at industry conferences. Compl., ¶¶ 255–268.
Plaintiffs allege that the statements misled investors in two related ways. First, defendants
allegedly overstated the overall yield number for WPG’s redevelopment projects. The overall yield
was at various times said to be from 8% to 10%. The yield was sometimes called an estimate and
was at other times described as a number “we get” or “we’re seeing.”
Second, defendants allegedly misrepresented the factors which WPG considered, or did not
consider, in calculating yield.

They stated that WPG considered “signed leases,” “rent” and

“cotenancy cure,” but did not include the effect which redevelopment would have on increasing rent
for adjacent spaces.

According to plaintiffs, WPG misled investors into believing that its

methodology for calculating yield was rigorous, when in fact WPG used speculative considerations,
such as the effect on adjacent spaces, in order to inflate the yield numbers.

15

B.

The Loss Causation Requirement

To state a claim under § 10(b), a plaintiff must plead two separate types of causation. The
first is reliance, or transaction causation. Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 341–42
(2005). A plaintiff must show that he relied on the misrepresentation or omission in making the
decision to purchase or sell a security. Id. In a fraud-on-the-market case such as this one, the
element of reliance is presumed if the statements are made or disclosed to the public. See Stoneridge,
552 U.S. at 159; Basic, 485 at 243. Defendants do not dispute that the presumption of reliance
applies here.
A plaintiff must also establish loss causation, which is the “causal connection between the
material misrepresentation and the loss.” Dura, 544 U.S. at 342. In an open market, a “tangle of
factors” affect price. Id. at 343. Section 10(b) “expressly imposes on plaintiffs ‘the burden of
proving’ that the defendant’s misrepresentations ‘caused the loss for which the plaintiff seeks to
recover.’” Id. at 345–46 (quoting 15 U.S.C. § 78u–4(b)(4)). To plead loss causation, plaintiff must
allege that “the subject of the fraudulent statement or omission was the cause of the actual loss
suffered.” Suez Equity Investors, L.P. v. Toronto–Dominion Bank, 250 F.3d 87, 95 (2d Cir. 2001).
Plaintiff must show “it was the very facts about which the defendant lied which caused its injuries.”
Tricontinental Indus., Ltd. v. PricewaterhouseCoopers, LLP, 475 F.3d 824, 842 (7th Cir. 2007). See also
MacPhee v. MiMedx Grp., Inc., 73 F.4th 1220, 1242 (11th Cir. 2023) (internal quotation marks omitted)
(“[T]he plaintiff must prove not only that a fraudulent misrepresentation artificially inflated the
security’s value but also that the fraud-induced inflation that was baked into the plaintiff’s purchase
price was subsequently removed from the stock’s price, thereby causing losses to the plaintiff.”).
The key to loss causation is showing that the company’s share price fell “after the truth
became known.” Dura, 544 U.S. at 347. “[A] plaintiff must show that an economic loss occurred
after the truth behind the misrepresentation or omission became known to the market.” Indiana
State Dist. Council of Laborers & Hod Carriers Pension & Welfare Fund v. Omnicare, Inc., 583 F.3d 935, 944
(6th Cir. 2009). Thus, “a person who ‘misrepresents the financial condition of a corporation in
order to sell its stock’ becomes liable to a relying purchaser ‘for the loss’ the purchaser sustains
‘when the facts . . . become generally known’ and ‘as a result’ share value ‘depreciate[s].’” Id. at 345
(quoting Restatement of Torts § 548A, Comment b, at 107). See also Salvani v. ADVFN PLC, 50 F.
Supp. 3d 459, 474 (S.D.N.Y. 2014) (“[T]o establish loss causation, there must be an allegation that
the misstatement or omission concealed something from the market that, when disclosed, negatively
affected the value of the security.”).
16

Loss causation is often established by showing the occurrence of a “corrective disclosure.”
“Under the corrective disclosure theory, a plaintiff alleges ‘cause-in-fact on the ground that the
market reacted negatively to a corrective disclosure of fraud.’” Ohio Pub. Emps. Ret. Sys. v. Fed. Home
Loan Mortg. Corp., 830 F.3d 376, 384 (6th Cir. 2016) (quoting In re Omnicom Grp., Inc. Sec. Litig., 597
F.3d 501, 511 (2d Cir. 2010)). “Loss causation is ‘easiest to show when a corrective disclosure
reveals the fraud to the public and the [company’s share] price subsequently drops.’” In re KBC Asset
Mgmt. N.V., 572 Fed. App’x 356, 360 (6th Cir. 2014) (quoting In re Williams Sec. Litig.-WCG Subclass,
558 F.3d 1130, 1137 (10th Cir. 2009)).
A related, but separate, method of establishing loss causation is through a “materialization of
the risk” theory. In re Vivendi, S.A. Sec. Litig., 838 F.3d 223, 261 (2d Cir. 2016) (clarifying that
corrective disclosure and materialization of the risk are not “fundamentally different pathways for
proving loss causation”). Whereas a corrective disclosure occurs upon an actual revelation of the
truth, materialization of the risk occurs upon constructive disclosure. A plaintiff proceeding under
this theory must show that defendant’s misrepresentations or omissions concealed a condition or
risk which later materialized and negatively affected the company’s stock price. Id. at 261–62.
Materialization of the risk is a theory under which “‘negative investor inferences,’ drawn
from a particular event or disclosure, ‘caused the loss and were a foreseeable materialization of the
risk concealed by the fraudulent statement.’” Ohio Pub. Emps., 830 F.3d at 384–85 (quoting Omnicom,
597 F.3d at 511). For example, in Ohio Public Employees, Freddie Mac allegedly misrepresented that it
had adhered to certain quality control standards which limited its exposure to nontraditional
mortgages. The risk that Freddie Mac did not follow its control standards materialized when it was
revealed that a large component of Freddie Mac’s portfolio was facing significant losses. Those
losses, plaintiffs alleged, stemmed from Freddie Mac’s extension into the subprime mortgage
market. The Sixth Circuit held that plaintiff adequately pleaded loss causation because of “the
relationship between the risks allegedly concealed and the risks that subsequently materialized, as
well as the close correlation between the alleged revelation or materialization of the risk and the
immediate fall in stock price.” Id. at 388 (internal quotation marks omitted).
C.

The Complaint Fails to State a Claim for Relief Based on a Materialization of
the Risk Theory

On its face, the Complaint proceeds under a corrective disclosure theory. The Complaint
contains a section entitled “Loss Causation.” Compl., ¶¶ 244–54. In that section, plaintiffs identify
three public disclosures (occurring on November 6, 2020, February 15, 2021, and March 4, 2021)
17

which caused the price of WPG’s stock to drop. Id., ¶¶ 244–45, 252–54. None of the three
disclosures revealed that WPG’s yield numbers for its mall redevelopment projects had been inflated
or that WPG had not adhered to a certain methodology in calculating yield. Instead, the disclosures
revealed that WPG had: (1) exceeded its debt covenants, which prevented WPG from borrowing
additional funds, (2) failed to make an interest payment on its bonds, and (3) secured bankruptcy
financing.
Not surprisingly, defendants’ motion to dismiss makes the straightforward argument that
plaintiffs failed to plead loss causation with respect the statements of overall yield. The disclosures
identified in the Complaint did not correct the allegedly false yield numbers or otherwise reveal the
truth behind those statements, because the disclosures did not speak to yield at all. The drop in
share value was a reaction to something else, and not to the truth about the yield numbers.
In response, plaintiffs claim that their Complaint alleges a materialization of the risk theory.
Plaintiffs characterize the materialization of the risk theory as “common” to situations “where a
company faces a liquidity crisis or bankruptcy.” Doc. 56 at PAGEID 1433. Plaintiffs provide a
genericized example of a defendant who misrepresents “the quality of a portfolio.” Id. When the
portfolio collapses in a crisis, then the risk that the portfolio held assets of poor quality has
materialized. Plaintiffs liken their example to this case. They argue that the yield numbers hid the
fact that “WPG’s malls were still decrepit, which risk materialized when the market learned that
WPG had taken steps towards bankruptcy.” Id.
Plaintiffs point to a handful of allegations in the Complaint which they believe support a
materialization of the risk theory.

See id. at PAGEID 1433–34.

The inflated yield numbers

communicated to investors that WPG had “vaunted malls.” Compl., ¶ 217; see also Doc. 56 at
PAGEID 1434 (plaintiffs’ brief, saying that the malls should have been “prized assets”). Had the
malls been as productive as WPG said they were, then the redeveloped malls would have had high
value and WPG could have sold them during a liquidity crisis. Compl., ¶¶ 214, 217. In reality,
redevelopment did not have “the impacts Defendants touted.” Id., ¶ 218. “As a result, Defendants
could not create any interest in WPG’s properties. WPG could not rely on asset sales to remedy a
deficit in its operating cash.” Id.
Both the Supreme Court and the Sixth Circuit have held that a complaint must be dismissed
if it does not establish “what the causal connection might be between [the] loss and the
misrepresentation.” Dura, 544 U.S. at 347; accord D.E.&J. Ltd. P’ship v. Conaway, 133 Fed. App’x 994,
1000 (6th Cir. 2005). Count I of the Complaint, asserting the § 10(b) claim, expressly alleges that
18

plaintiffs’ loss was caused when the “market price of Washington Prime Group securities declined
sharply upon public disclosure of the facts alleged herein to the injury of Plaintiffs and Class
members.” Compl., ¶ 299. The only public disclosures alleged in the Complaint are the three public
disclosures (dated November 6, 2020, February 15, 2021, and March 4, 2021), which the Complaint
identifies as “corrective disclosures.” Id., ¶ 1. Indeed, the proposed class itself is defined by the
corrective disclosures. The Complaint brings suit on behalf of all persons who purchased WPG
shares from February 22, 2018 through March 3, 2021 (the day before the final corrective disclosure)
and held their securities “through at least one of the corrective disclosures.” Id., ¶ 1; see also id., ¶ 281
(“Plaintiffs bring this action as a class action pursuant to Federal Rule of Civil Procedure 23(a) and
(b)(3) on behalf of a Class, consisting of all those who purchased or otherwise acquired Washington
Prime Group securities during the Class Period (the “Class”) and were damaged upon the revelation
of the alleged corrective disclosures.”). Again, the corrective disclosures said nothing about the
truth behind yield numbers.
The Court finds that the substantive allegations fail to support a materialization of the risk
theory of loss causation. “The materialization of risk theory . . . requires a direct connection
between the risk that is hidden from investors and the subsequent loss suffered by those investors.”
Salvani, 50 F.Supp.3d at 475. The “subject” of the misrepresentations must be the cause of the loss
suffered. Lentell v. Merrill Lynch & Co., 396 F.3d 161, 173 (2d Cir. 2005); see also Tricontinental, 475
F.3d at 842 (plaintiff must show “it was the very facts about which the defendant lied which caused
its injuries”).

The Complaint alleges that the yield numbers were the subject of the

misrepresentations. The risk which materialized and caused loss, according to plaintiffs’ briefing,
was not that WPG fell short of those yield numbers. It was something different: that WPG could
not sell the redeveloped properties during a liquidity crisis.
In their brief, plaintiffs attempt to argue around the Complaint’s lack of a connection
between the alleged misrepresentations and the losses plaintiffs suffered. The Court finds these
attempts to be unpersuasive. For instance, plaintiffs try to add to the statements which they would
identify as being misrepresentations. They now argue that defendants Conforti and Yale made
“illusory” promises that “WPG could liquidate assets for cash.” Doc. 56 at PAGEID 1434. The
Complaint does contain two allegations in which Conforti and Yale are alleged to have stated that
WPG would consider “future asset sales” at “the right price” as “an option for future liquidity.”
Compl., ¶¶ 205, 209. But the Complaint does not identify these statements as misrepresentations, as
it must under the PSLRA, nor does the Complaint in any way allege scienter with respect to the
19

assertion that defendants spoke falsely when they stated they would be open to considering a future
asset sale at the right price as an option for future liquidity. See 15 U.S.C. § 78u–4(b)(1), (2); Tellabs,
551 U.S. at 319; Frank., 547 F.3d at 570.
Next, plaintiffs point to the fact of WPG’s bankruptcy as evidence of the materialization of
the risk. If the redeveloped malls were as high-yielding as promised, then WPG would not have
gone bankrupt, so the argument goes.

The Court must reject this attempt to connect the

misrepresentations to the loss. The disclosure that WPG was preparing to file for bankruptcy
cannot serve as a catch-all to mean that everything WPG had previously told the market was false or
that every misrepresentation spoken bore a causal relationship to the bankruptcy. See D.E.&J. Ltd.
P’ship, 133 Fed. App’x at 1000 (“[T]he filing of a bankruptcy petition by itself does not a security
fraud allegation make.”). Plaintiffs must allege that the event of bankruptcy disclosed a prior
misrepresentation to the market. See id., 133 Fed. App’x at 1000–01 (“[T]he observation that a stock
price dropped on a particular day, whether as a result of a bankruptcy or not, is not the same as an
allegation that a defendant’s fraud caused the loss.”). Specifically, plaintiffs must allege which
among the “tangle of factors” is the one causing their loss. The Complaint’s allegation of the
occurrence of a bankruptcy, without more, does not suffice.
Plaintiffs argue that “the risk that WPG’s assets could not be sold in an emergency fell
within the zone of risk concealed by their false statements.” Doc. 56 at PAGEID 1434. “[I]n the
securities fraud context, ‘a misstatement or omission is the “proximate cause” of an investment loss
if the risk that caused the loss was within the zone of risk concealed by the misrepresentations and
omissions alleged by a disappointed investor.’” Ohio Pub. Emps., 830 F.3d at 384 (quoting Lentell,
396 F.3d at 173) (emphasis omitted). See also Omnicom, 597 F.3d at 513 (zone of risk “is limited to
only the foreseeable losses for which the intent of the laws is served by recovery”) (internal
quotation marks omitted).
Plaintiffs attempt in their brief, in a way they did not in their Complaint, to set forth how the
risk that materialized was in the zone of risk which was concealed. As a REIT, WPG had to
distribute 90% of its income as dividends, which meant that it could not stockpile cash for a liquidity
crisis. WPG instead had to rely on debt financing or selling assets. The COVID pandemic created a
large divide between “good and bad malls.”

Had the redeveloped malls obtained the yields

promised by defendants, they would have been productive malls which WPG could have sold to
survive its liquidity crisis. But because the malls did not obtain the promised yields, WPG was
unable to sell them and ran out of funds to pay creditors and maintain operations. In this way,
20

plaintiffs argue it was foreseeable that “overstating redevelopment yields would leave WPG with no
assets to sell in a downturn, leaving WPG unable to respond to a liquidity crisis.” Doc. 56 at
PAGEID 1434.
To be sure, the Complaint contains a few allegations which could be pieced together in
relation to plaintiffs’ zone of risk argument. See Compl., ¶ 40 (defining the characteristics of REITs),
¶ 211 (quoting a news article on the “bifurcation between good and bad quality” malls). But again
the Complaint does not articulate sufficient facts to support the theory. The Complaint does not
allege or define the zone of risk, nor does it show how the risk which caused the loss (which
plaintiffs now contend to be the possibility that the redeveloped malls would be worthless) was
within the zone of risk concealed by the misrepresentations (which are still the inflated yield
numbers). See Omnicom, 597 F.3d at 514 (connection between concealed risk and loss cannot be
tenuous); Suez, 250 F.3d at 96 (“The loss causation inquiry typically examines how directly the
subject of the fraudulent statement caused the loss, and whether the resulting loss was a foreseeable
outcome of the fraudulent statement.”); Stratte-McClure v. Morgan Stanley, No. 09 CIV. 2017 DAB,
2013 WL 297954, at *11 (S.D.N.Y. Jan. 18, 2013) (causal connection is insufficiently pled if it is
attenuated).
As importantly, the Complaint itself contains allegations which undermine the zone of risk
argument. For one, it acknowledges that even WPG’s “bad” mall properties retained some value.
Compl., ¶ 211 (quoting an article that bad malls were worth the value of “the land minus the cost of
demolition”). These assets could have been sold, or so it would seem, to have created liquidity.
According to the Complaint, WPG’s actual yields were 4-5%. Id., ¶ 120. It is unclear why malls
yielding 9-10% would have been so valuable as to have allowed WPG to escape a liquidity crisis, but
malls yielding only several percentage points lower were not.
Even if the malls had little value and could not be sold, the Complaint alleges that the
market knew this fact – and thus the truth was disclosed – before the declines in share value
preceding WPG’s bankruptcy.

For instance, the Complaint alleges that “Defendant Conforti

explained in a presentation at the September 15, 2020 Bank of America Merrill Lynch Tower Global
Real Estate Conference, [that] there was no interest in WPG’s properties.” Id., ¶ 215 (emphasis added). In
November 2020, WPG announced that it had sold one of its redeveloped malls to a residential
housing developer who intended to bulldoze the mall. Id., ¶ 217. The Complaint cites this sale as an
example of WPG’s malls being worth the value of “the land minus the cost of demolition.” Id. The
risk that WPG’s redeveloped malls were not “prized assets” in the time of the COVID pandemic
21

was already known by the market well before the drops in stock price corresponding with plaintiffs’
losses. See KBC, 572 Fed. App’x at 360 (holding that a loss causation theory “only works when a
disclosed fact is new to the market. . . . The problem with KBC’s theory is that the May 31
affidavits—the alleged corrective disclosures—were old news.”) (internal quotation marks and
alterations omitted); Norfolk Cnty. Ret. Sys. v. Cmty. Health Sys., Inc., 877 F.3d 687, 695 (6th Cir. 2017)
(“Of course, for the revelation to cause the plaintiffs’ losses, the information must in a practical
sense be new; otherwise the market will have processed and reacted to that information already.”)
(citing Rand-Heart of N.Y., Inc. v. Dolan, 812 F.3d 1172, 1180 (8th Cir. 2016)).
On the note of old news, the Complaint contains allegations that the market also already
knew that WPG’s yields were not actually as high as 9% or 10%. It alleges that “WPG reported
notably lower yields for redevelopment of O’Connor Joint Venture properties.” Compl., ¶ 122.
And according to the Complaint, WPG reported estimated yields of just 4-5% for its Polaris Fashion
Place project, 5-6% for the Town Center at Aurora redevelopment, and 5-6% for the Mall at
Johnson City project. Id., ¶¶ 148, 153, 157, 271, 275. In the SEC filing attached to the Complaint
(Feb. 26, 2020 Form 8-K), WPG similarly disclosed that expected yields for other redevelopment
projects were as low as 5-6% and 6-8%. Id. at PAGEID 912.
The Complaint alleges that the market knew too that WPG was facing a liquidity crunch.
WPG’s cash flow from operations dropped from $209.3 million in 2019 to $78.6 million in 2020.
Compl., ¶ 202. Because WPG had to pay out 90% of its income as dividends, each quarter provided
investors with a real-time indication of WPG’s financial health. According to the Complaint, WPG
had to slash dividends in the first quarter of 2020 and paid no dividends for the remainder of 2020.
Id., ¶ 203. Even pre-pandemic, WPG’s February 26, 2020 Form 8-K disclosed that WPG’s annual
net income (after dividend payments) had dropped dramatically from 2018 to 2019. Doc. 53-4 at
PAGEID 1247 (from over $100 million to $2.7 million). And later in May 2020, WPG’s Form 10-Q
disclosed a warning that, in light of WPG’s debt covenants, there was “substantial doubt about our
ability to continue as a going concern.” Compl., ¶ 230; see also Doc. 53-7 at PAGEID 1282 (WPG’s
May 7, 2020 Form 10-Q: “As a result of the related events due to the COVID-19 pandemic, we may
experience a material adverse effect on our income and expenses that could impact our ability to
maintain compliance with out credit facility and bond covenants.”). An analyst commented in June
2020 that WPG’s “shares have been one of the worst performing REITs this year.” Id., ¶ 231. See
also Doc. 53-19 at PAGEID 1368 (Yale stating in September 2020 that WPG’s NOI growth in the
first half of 2020 was down 30% for enclosed malls).
22

Finally, there is the impact of the COVID pandemic, a fact the Complaint acknowledges.
See, e.g., Compl., ¶ 2 (“WPG had no resources to withstand the impact of COVID.”); ¶ 202
(“COVID-19 put a strain on WPG’s finances.”); ¶ 210 (“COVID hit WPG, sharply reducing its
revenues.”). Attached to the Complaint is a March 2021 Bloomberg financial article stating that
“U.S. mall values plunged an average of 60% after appraisals in 2020, a sign of more pain to come
for retail properties even as the economy emerges from pandemic-enforced lockdowns.” Id., at
PAGEID 915 (reporting that $4 billion in value was “erased” from 118 retail-anchored properties).
“[W]hen the plaintiff’s loss coincides with a marketwide phenomenon causing comparable
losses to other investors, . . . the plaintiff may be required to plead facts from which it would be
reasonable to infer that the risks which materialized in her loss were risks concealed by the fraud
rather than risks evident [to the market].” Loreley Fin. (Jersey) No. 3 Ltd. v. Wells Fargo Sec., LLC, 797
F.3d 160, 187 (2d Cir. 2015) (internal quotation marks omitted). See also In re Flag Telecom Holdings,
Ltd. Sec. Litig., 574 F.3d 29, 36 (2d Cir. 2009) (“[T]o establish loss causation, Dura requires plaintiffs
to disaggregate those losses caused by changed economic circumstances, changed investor
expectations, new industry-specific or firm-specific facts, conditions, or other events, from
disclosures of the truth behind the alleged misstatements.”) (internal quotation marks omitted).
Plaintiffs must plead facts from which it can be reasonably inferred that at least some of
their losses can be connected to the risks concealed by the fraud rather than solely to COVID’s
impact on the retail mall sector. The Complaint fails to allege sufficient facts in this regard.
Plaintiffs contend that the redeveloped malls should have been valuable assets. Yet, as discussed
above, the Complaint itself alleges that the market knew in the first half of 2020 that WPG had little
operating income and knew by September 2022 that WPG had been unable to generate interest in
its malls. These disclosures came well in advance of the alleged materialization of the risk occurring
“when WPG announced that it had failed to make a payment on its bonds and again when
Bloomberg revealed that WPG was securing bankruptcy financing, the preparatory steps to its
bankruptcy.” Doc. 56 at PAGEID 1434. WPG’s liquidity crunch and subsequent bankruptcy
cannot, under these alleged facts, be said to have been the materialization of the risk concealed by
defendants’ statements about yield numbers. See Solow v. Citigroup, Inc., 507 Fed. App’x 81, 82 (2d
Cir. 2013) (“The Complaint also fails to distinguish the effects of the fraud alleged from those
caused by the adverse market conditions existing at the time.”); In re Merrill Lynch & Co. Rsch. Reps.
Sec. Litig., 568 F.Supp.2d 349, 360 (S.D.N.Y. 2008) (“Ventura cannot successfully plead that his
losses resulted solely or even partially from the purported materialization of the risk that the
23

defendants allegedly concealed, rather than from intervening causes, such as the collapse of the
Internet sector.”).
Accordingly, the Court finds that the Complaint fails to state a claim under § 10(b) with
respect to defendants’ statements regarding overall yield.
VI.

Statements Regarding Individual Project Yields
The next set of allegedly false statements relate to yield estimates for individual mall

redevelopment projects. Plaintiffs allege that defendants overstated the expected yield numbers for
four projects: the Mall at Fairfield Commons, Polaris Fashion Place, Southern Park Mall, and the
Town Center at Aurora.

According to the Complaint, the inflated yield figures appeared in

Supplemental Information Reports which WPG filed with its Form 8-Ks.
Defendants argue that the claims relating to these statements should be dismissed for two
reasons: a failure to adequately plead loss causation and the application of the PSLRA’s safe harbor
provision. With respect to loss causation, the Court agrees for the reasons stated above in relation
to the overall yield statements. The Court further finds that the individual project yield statements
are entitled to safe harbor protection, as discussed below.
A.

Safe Harbor – Introduction

Congress created a safe harbor in the PSLRA based on the judicial “bespeaks caution”
doctrine. Helwig v. Vencor, Inc., 251 F.3d 540, 547 (6th Cir. 2001). Under the safe harbor, the issuer
of a security (or a person acting on behalf of the issuer) is not liable for an untrue statement under
certain circumstances involving “forward-looking statements.”

15 U.S.C. § 78u-5(c)(1).

Of

relevance here is the circumstance in which a forward-looking statement is identified as such and is
“accompanied by meaningful cautionary statements identifying important factors that could cause
actual results to differ materially from those in the forward-looking statement.” Id. at § 78u5(c)(1)(A)(i). See also Helwig, 251 F.3d at 547–48.
“[I]f the statement qualifies as ‘forward-looking’ and is accompanied by sufficient cautionary
language, a defendant’s statement is protected regardless of the actual state of mind.” Miller v.
Champion Enterprises Inc., 346 F.3d 660, 672 (6th Cir. 2003).
B.

Forward-Looking Statements

A “forward-looking statement” is defined to include three basic categories: (1) any financial
“projection,” such as projections of revenue, income, earnings, expenditures, dividends “or other
financial items”; (2) statements “of the plans and objectives of management for future operations”;
24

and (3) statements of “future economic performance.” 15 U.S.C. § 78u–5(i)(1). Protection extends
to “any statement of the assumptions underlying or relating to any statement” fitting within the
three categories. Id. See generally Helwig, 251 F.3d at 547–48.
WPG’s Supplemental Information Reports contained a prefatory “SAFE HARBOR” notice.
Each notice stated, “Some of the information contained in this presentation includes forward
looking statements. Such statements are subject to a number of risks and uncertainties which could
cause actual results in the future to differ materially and adversely from those described in the
forward-looking statements. Investors should consult the Company’s filings with the Securities and
Exchange Commission for a description of the various risks and uncertainties which could cause
such a difference before deciding whether to invest.” See, e.g., Doc. 47-1 at PAGEID 910.
The Reports presented financial information, including information relating to
“Redevelopment Projects.” See, e.g., id. at PAGEID 912. The projects were listed by name in a
table. The table included the location of the project, the “opportunity” presented (in the case of
Southern Park, for example, the plan to replace a formers Sears store with “new entertainment,
dining, retail, and community green space”), the “estimated total costs” of the project, the
“estimated project yield” (expressed as a percentage range), and the “estimated” year of completion.
Id.
Defendants argue that the Safe Harbor notice in the Reports clearly identified the
information contained therein as forward-looking. Defendants further allege that estimates of yield
were projections of financial performance which fit well within the statutory definition of forwardlooking.
Plaintiffs oppose both arguments. The Reports contained a great deal of information, and
plaintiffs contend that the Safe Harbor notice did not specifically identify the yield estimates as
forward-looking. Second, plaintiffs argue that the yield numbers were not forward-looking, but
instead were backward-looking statements.
1.

Identified as Forward-Looking

The Court finds that the Reports sufficiently identified the yield estimates as forwardlooking statements. Plaintiffs are correct that the Reports, which were approximately 24 pages long,
contained a substantial amount of information. Not all of it was forward-looking. For instance, the
October 25, 2018 Report 5 contained financial data for the nine-month period ending on September
30, 2017. Id., p. 1. A reasonable investor would not have expected the Safe Harbor warning to
5

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25

apply to information so plainly relating to past performance. See Kolominsky v. Root, Inc., 667 F. Supp.
3d 685, 705 (S.D. Ohio 2023) (applying a “reasonable investor” standard: would the statements have
put a reasonable investor on notice that the company was making a forward-looking statement?).
As a reader continued through the Report, he would have encountered language signaling
where forward-looking statements appeared. See Slayton v. Am. Express Co., 604 F.3d 758, 769 (2d
Cir. 2010) (adopting the SEC’s position that to qualify as forward-looking, a statement need not be
segregated in a “discrete section” marked “Forward–Looking Statements,” nor need it be
“specifically labeled” as “forward-looking”). For example, one section of the Report contained
“Earnings Expectations,” which listed WPG’s projected FFO for the fourth quarter of 2018, which
had not yet been completed. Oct. 25, 2018 Report, p. 9. This forward-looking material could be
easily contrasted with other portions of the Report reviewing past events, including one which
detailed leasing “results” for the period ending September 30, 2018. Id., p. 11.
A reasonable investor, having been cautioned that the Report contained some forwardlooking statements, would have had no difficulty recognizing the yield estimates as being included
within that scope because the Report gave clear linguistic signals. See Slayton., 604 F.3d at 769
(examining the “use of linguistic cues” to determine whether the reasonable investor was put “on
notice that the company is making a forward-looking statement”). On the page which contained the
yield estimates, the Report told readers that the information on the page concerned projects “under
construction or approved for construction.” Oct. 25, 2018 Report, p. 16. Dates stretching into the
future were listed as “estimated completion” dates. Each project contained a description of the
“opportunity” presented, which were the forward-looking plans or goals for each redeveloped mall.
Financial data was labeled as “estimated.” Readers were advised that future changes could cause the
estimates to be inaccurate. In sum, the Court finds that the Reports adequately identified the yield
estimates as forward-looking.

See Slayton., 604 F.3d at 769 (examining whether the statement

“projects results in the future” by using words like “expect”).
2.

Substantively Forward-Looking

The Court further finds that the yield estimates were in fact forward-looking. Plaintiffs’
argument to the contrary is not entirely clear, but they suggest that forward-looking statements must
be “pure predictions about the future” based on considerations “for which there is no formula.”
Doc. 56 at PAGEID 1414 at n.16. Plaintiffs argue that WPG arrived at the yield numbers by taking
“current” or “existing” revenue data and making a “numerator/denominator” calculation. Because

26

the Report posted the results of those calculations, the yield figures were “backward-looking
statement[s] concerning a future event.” Doc. 56 at PAGEID 1397, 1414.
The Court rejects plaintiffs’ argument. It cannot be the case that the dividing line between
forward-looking and backward-looking is whether a calculation is involved. Congress defined
forward-looking statements to include projections of “financial items” such as revenue, income,
earnings, expenditures, and dividends. These projections naturally will be the result of a calculation.
“The critical inquiry in determining whether a statement is forward-looking is whether its
veracity can be determined at the time the statement is made. If so, then the statement is not
forward-looking.” Dougherty v. Esperion Therapeutics, Inc., 905 F.3d 971, 983 (6th Cir. 2018) (internal
quotation marks omitted). When a statement reports past results and data, then its truth can be
verified at the time it is made. But a statement making financial or economic projections, even if
requiring calculation, cannot be verified because it is predicting future events and items, such as
expected sales or expected costs.
Plaintiffs stress that WPG used existing data to make the estimated yield calculations. This
alone does not remove the yield estimates from safe harbor protection. A company wanting to
make a reliable projection of financial items likely would follow a formula based in part on past or
current performance. By including the “assumptions underlying” a company’s financial projections
within the definition of forward-looking statements, Congress granted protection to future
predictions which to some degree incorporate or rely on existing data concerning past or present
performance.

See Miller, 346 F.3d at 677 (holding that a company’s prediction of having a

“continuation of outstanding earnings growth,” while based on “some present circumstances,”
qualified as forward-looking); Lopez v. Ctpartners Exec. Search Inc., 173 F. Supp. 3d 12, 40 (S.D.N.Y.
2016) (holding that a statement was forward-looking because it made a “prediction” – a “calculation
of what the final quarterly financial results would be” – even if it was based in part on “currently
available” financial information) (emphasis in original).
WPG’s project yield estimates were not calculations based solely on past or current data. As
presented in the Reports, they represented an inexact financial projection, expressed as a percentage
range, of future annual income divided by total costs once a redevelopment project was completed.
See Compl., ¶ 133 (alleging that yield estimates were based on “anticipated rents from all stores after
redevelopment”), ¶¶ 151, 160 (describing how WPG estimated yield based on assumptions about
rent it would receive from spaces that were not yet designed or leased), ¶ 163 (alleging that WPG
assumed 100% occupancy once redevelopment was completed).
27

The Reports used the word “estimated” to describe both the yield figures and the costs on
which they were based, and the Reports said the yield estimates were “subject to adjustment” based
on future events. See Miller, 346 F.3d at 677 (holding that earnings “estimates” are “classically
forward-looking”). The yield figures were thus both financial projections and estimates of future
economic performance.

See 15 U.S.C. § 78u-5(i)(1)(A),(C); Grant v. Ursula Mgmt., LLC, No.

20CV2953WFKAKT, 2021 WL 8382243, at *4 (E.D.N.Y. Oct. 6, 2021) (holding that a hedge fund
managers’ prediction of “consistent cash yields of 5 to 8%” was “a forward-looking statement as it
directly relates to the future performance of the Fund”). Their veracity could not be ascertained
when WPG issued the Reports because actual yield could not have been known or calculated until
future events transpired, including the completion of the mall redevelopment projects. See In re
Aetna, Inc. Sec. Litig., 617 F.3d 272, 281 (3d Cir. 2010) (“Statements about future profitability and
assumptions underlying management’s expectations about the future fall squarely within the
definition of forward-looking statement.”).
The Court’s conclusion is not altered by plaintiffs’ assertion that WPG calculated the yield
estimates using only “locked-in” returns. Doc. 56 at PAGEID 1391. The relevant allegation in the
Complaint concerns a statement Conforti made at a REIT conference on June 5, 2018. See Compl.,
¶ 96. Conforti was asked a question about how WPG “look[s] at tenant diversification and if the
tenant doesn’t renew.” Id. In his response, as quoted in the Complaint, he did not say that WPG
used “locked-in” returns in determining yield estimates. Rather, he responded that return on
invested capital was a “numerator/denominator” calculation. Id. He added, “When we embark
upon the development, and that development is vastly leased, we’re not in the speculative
redevelopment business.” Id.
To the extent Conforti’s response suggested that the numerator component (annual income)
of WPG’s yield calculation contained a relatively predictable source of future income – rent on
“vastly leased” space – he nonetheless did not guarantee that income was “locked-in” or impervious
to future events and changes. He instead expressed a degree of confidence that WPG would see
good returns on redevelopment projects because of the level of lease commitments. And Conforti
said nothing of the denominator component (total costs) being fixed or locked-in. The Reports
expressly stated that costs for the redevelopment projects were estimated and subject to change.
This meant that yield too could vary with changes in costs.
The Court thus finds that the project yield estimates in the Reports were forward-looking
statements.

Even plaintiffs ultimately acknowledge that “[t]o arrive at the yield estimates,
28

Defendants presumed that the business plan would work.” Doc. 56 at PAGEID 1407 (emphasis
omitted); see also id. at PAGEID 1415 (“[I]t is inherently true that WPG’s redevelopment projects
might not achieve their goals.”).
C.

Meaningful Cautionary Language

Having determined that the yield estimates were forward-looking statements and were so
identified, the Court turns to whether they were “accompanied by meaningful cautionary statements
identifying important factors that could cause actual results to differ materially from those in the
forward-looking statement.” 15 U.S.C. Id. at § 78u-5(c)(1)(A)(i); see also id. at § 78u-5(e) (providing
that on a motion to dismiss under the safe harbor rule, a court should consider any cautionary
statement accompanying the forward-looking statement). If so, safe harbor protection applies to the
statements no matter defendants’ state of mind. Miller, 346 F.3d at 672.
“Meaningful” cautionary statements contain more than boilerplate warnings. Helwig, 251
F.3d at 558–59. They “must convey substantive information about factors that realistically could
cause results to differ materially from those projected in the forward-looking statements, such as, for
example, information about the issuer’s business.” Id. (internal quotation marks omitted). While the
cautionary language need not exhaustively list all potential risk factors, it must be tailored in some
way to the “specific future projections, estimates or opinions which the plaintiffs challenge.” Id.
(internal quotation marks and alterations omitted). The court must look “to whether the defendant
meaningfully alerted investors to the risks that might prevent it from reaching its financial targets.”
Pension Fund Grp. v. Tempur-Pedic Int’l, Inc., 614 Fed. App’x 237, 243 (6th Cir. 2015). See also Southland
Sec. Corp. v. INSpire Ins. Sols., Inc., 365 F.3d 353, 372 (5th Cir. 2004) (“The requirement for
‘meaningful’ cautions calls for ‘substantive’ company-specific warnings based on a realistic
description of the risks applicable to the particular circumstances, not merely a boilerplate litany of
generally applicable risk factors.”).
Plaintiffs argue that investors did not receive meaningful cautionary statements because the
Safe Harbor notice in each Report was a boilerplate warning. The Court would be inclined to agree
if the notice were the only warning investors received. The notice generally advised that the
forward-looking statements were “subject to a number of risks and uncertainties which could cause
actual results in the future to differ materially and adversely from those described in the forwardlooking statements.” See, e.g., Doc. 47-1 at PAGEID 910. This language did not provide tailored
warnings based on the risks specific to WPG and its business.

29

Investors, however, received additional and more specific warnings. On the page where the
Report listed the yield estimates, footnotes cautioned investors that the estimates were subject to
changes “inherent in the development process.” See, e.g., id. at PAGEID 912. The footnotes did not
enumerate the potential changes, but a reasonable investor – applying common sense and viewing
the context of the other information presented in the table – would appreciate that redevelopment
projects can take longer than estimated, can exceed costs, and can experience changes in potential
tenants and the intended “opportunity,” all of which in turn could materially affect yield. See In re
Sadia, S.A. Sec. Litig., 269 F.R.D. 298, 302 (S.D.N.Y. 2010) (a reasonable investor employs common
sense); S.E.C. v. Reynolds, No. CIV.A.3-08-CV-0384-B, 2008 WL 3850550, at *5 (N.D. Tex. Aug. 19,
2008) (“A reasonable investor relies on common sense and objective facts . . . .”).
Moreover, the Safe Harbor notice in the Reports instructed investors to “consult the
Company’s filings with the Securities and Exchange Commission for a description of the various
risks and uncertainties which could cause such a difference before deciding whether to invest.”
Doc. 47-1 at PAGEID 910. As courts have held, “[c]autionary statements disclosed in SEC filings
may be incorporated by reference; they do not have to be in the same document as the forwardlooking statements.” Aetna, 617 F.3d at 282 (internal quotation marks omitted); see also Julianello v. KV Pharm. Co., 791 F.3d 915, 921 (8th Cir. 2015).
Defendants correctly point out that WPG’s filings with the SEC contained extensive and
tailored warnings. For example, on October 25, 2018 (the same day WPG filed the first Report at
issue in this case), WPG filed a Form 10-Q 6 that contained a section entitled “Forward-Looking
Statements.” This section disclosed numerous risks which could prevent WPG from reaching its
yield estimates and other goals. The risks specific to WPG’s business included: changes in “real
estate and capital markets”; “changes in asset quality”; “liquidity” of real estate holdings; tenant
“bankruptcies” or other changes to the “financial stability of tenants within the retail industry”;
changes in mall “rental rates”; the failure to achieve the desired “retail store occupancy” rates; the
failure to achieve the desired “same store operating income”; changes in “relationships with anchor
tenants”; availability of financing; competition; “trends in the retail industry”; and changes in
“economic and market conditions.” Oct. 25, 2018 Form 10-Q, p. 46. Investors were expressly
warned that these and other factors created a risk of the “failure to achieve projected returns or
yields on (re)development and investment properties.” Id. Later SEC filings likewise listed these

6

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30

risk factors and similarly warned investors that WPG might fail to achieve its projected yields for the
redevelopment projects. 7
WPG’s Annual Form 10-K filings also contained “Risk Factor” warnings, to which the Form
10-Qs made reference.

For example, WPG’s Form 10-K for the 2018 fiscal year8 identified

numerous risks specific to WPG’s “Business and Operations” and expounded upon them in full
paragraph discussions. Among the risks disclosed were: the failure to renew tenant leases; the failure
to lease newly-developed properties; the loss of anchor tenants; “higher than projected costs” for
redevelopment projects (and the reasons why costs could go higher); the relative illiquidity of
WPG’s real estate assets; fluctuations in the “level of revenues realized” by tenants (which could
depend on consumer spending, unemployment, online shopping behavior, and more); and tenant
bankruptcies and store closures. Feb. 21, 2019 Form 10-K, pp. 9–18. These specific warnings put
reasonable investors on notice that future income and future costs relating to WPG’s redevelopment
projects were subject to many risks and variables which could prevent WPG from achieving its yield
estimates.
D.

Conclusion

The Court finds that the Reports’ yield estimates for the four redevelopment projects (the
Mall at Fairfield Commons, Polaris Fashion Place, Southern Park Mall, and the Town Center at
Aurora) were forward-looking statements which were identified as such and were accompanied by
meaningful cautionary statements. Importantly, WPG’s cautionary statements warned investors of
the very risk which actually materialized – that WPG might not achieve the yield estimates for the
projects. See Helwig, 251 F.3d at 559 (“‘[W]hen an investor has been warned of risks of a significance
similar to that actually realized, she is sufficiently on notice of the danger of the investment to make
an intelligent decision about it according to her own preferences for risk and reward.’”) (quoting
Harris v. Ivax Corp., 182 F.3d 799, 807 (11th Cir. 1999)); Miller, 346 F.3d at 678 (cautionary language
was meaningful because it “disclosed the exact risk that occurred in this situation”); Julianello, 791
F.3d at 922 (cautionary language was meaningful because it warned investors “of precisely the risks
about which they now complain”).

7

8

https://www.sec.gov/ixviewer/ix.html?doc=/Archives/edgar/data/0001594686/000159468619000034/wpg10qseptember302019.htm (Oct. 24, 2019 10-Q);
https://www.sec.gov/ixviewer/ix.html?doc=/Archives/edgar/data/0001594686/000159468620000034/wpg20200930.htm (Nov. 6, 2020 10-Q)
https://www.sec.gov/Archives/edgar/data/1594686/000159468619000007/wpg201810-k.htm (Feb. 21, 2019)

31

Accordingly, the yield estimates receive protection under the PSLRA’s safe harbor provision
and defendants are not liable for the statements. See 15 U.S.C. § 78u-5(c)(1).
VII.

Statements Regarding Debt Covenants
The final set of alleged misrepresentations concern statements which Yale and Conforti

made in August and September 2020. Both statements related to WPG’s efforts to obtain a
modification to its credit facilities.
A.

August 11, 2020 Earnings Call
1.

Two Theories Asserted in the Complaint

Plaintiffs allege that defendants made false statements when discussing a modification to the
credit facilities (the term loans and Revolver) in an August 11, 2020 earnings call. Yale stated:
Obviously, the significant news from a balance sheet perspective involves the
pending credit facilities modification. Today, we’ve received the requisite lender
consents for such modification and we expect to close by the end of the week on the
revised facility. As [Conforti] mentioned, through the immediate waiver of certain
financial covenants and less restrictive thresholds into next year, including a
permanent increase to the limit for overall leverage to 65%, the modification
should provide us with a bridge to the other side of the pandemic.
...
We should also mention that we are in compliance with the bond covenants as of the
second quarter of 2020 both prior to and proforma for the credit facilities
modification. When considering the uncertainty associated with COVID, significant
risks exist to any projections, [but] we believe the company should have the
necessary flexibility that will allow us to navigate and maintain compliance with our
modified credit facilities and bond covenants for the foreseeable future.
Compl., ¶ 277 (emphasis in the Complaint).
The Court notes some confusion between the parties over what exactly plaintiffs believe is
false about Yale’s remarks. In their motion to dismiss, defendants interpret the Complaint as raising
the allegation that Yale spoke falsely in saying WPG should have “a bridge to the other side of the
pandemic” and should have the flexibility necessary “for the foreseeable future.” Defendants argue
that Yale’s comments are vague, non-actionable expressions of corporate optimism. See Indiana State
Dist. Council of Laborers & Hod Carriers Pension & Welfare Fund v. Omnicare, Inc., 583 F.3d 935, 944 (6th
Cir. 2009).
In their opposition to the motion, plaintiffs do not squarely respond to defendants’
argument. Plaintiffs instead argue that Yale falsely “implied” that the bond covenants were being
32

modified. Doc. 56 at PAGEID 1423–24. This alleged implication was false because WPG was
modifying only the credit facilities.
The Complaint itself contains language relating to each theory. First, with respect to the
statements on which defendants focus, the Complaint alleges that Yale billed the modification to be
“a bridge to the other side of the pandemic” but “[i]t was no such thing.” Compl., ¶¶ 22–23.
Defendants allegedly knew WPG “could no longer borrow money” and thus would not be able to
“dig itself out of the hole created by the pandemic.” Id., ¶¶ 238, 278. Second, with respect to the
language on which plaintiffs focus, the Complaint also alleges that Yale’s comments were false
because “WPG had not received any changes to the bond covenants.” Id., ¶ 278.
The Court thus concludes that the Complaint asserts both theories, but, as is discussed
below, finds that neither theory can survive the motion to dismiss.
2.

Vague, Optimistic Statements are Not Material

Defendants are correct that vague expressions of corporate optimism are not material.
“Courts have consistently found immaterial a certain kind of rosy affirmation commonly heard from
corporate managers and numbingly familiar to the marketplace – loosely optimistic statements that
are so vague, so lacking in specificity, or so clearly constituting the opinions of the speaker, that no
reasonable investor could find them important.” Indiana State, 583 F.3d at 944 (internal quotation
marks omitted). Statements which “do nothing more than vaguely predict positive future results”
are “so banal and ubiquitous” that they “cannot engender reliance by reasonable investors.” Id.
Here, Yale expressed his opinion that the credit facilities modification “should” provide
WPG with a “bridge to the other side of the pandemic.” He gave no concrete numbers, plans, or
financial details as to how WPG would survive the pandemic. He made no promises. Indeed, he
emphasized the “uncertainty associated with COVID” and the “significant risks” of making “any
projections,” which qualified his optimism that the modification “should” give WPG the
“flexibility” needed to “navigate” the situation “for the foreseeable future.” Compl., ¶ 277.
The Court readily finds that Yale’s comments are the type of “loosely optimistic statements”
which no reasonable investor would find to be material – a conclusion which plaintiffs do not
attempt to dispute in response to the motion to dismiss. See Indiana State, 583 F.3d at 944 (statement
that “earnings growth outlook remains positive given our strong underlying fundamentals and our
proven growth strategy” was not actionable); Ashland, Inc. v. Oppenheimer & Co., 648 F.3d 461, 468
(6th Cir. 2011) (statement which “escapes objective verification” is not actionable).

33

3.

Purported Statement about Modifying the Bond Covenants
a.

No Plausible Misrepresentation Alleged

The Court turns to plaintiffs’ theory that Yale falsely implied WPG was modifying its bond
covenants. This theory rests on Yale’s statement that WPG should be able to “maintain compliance
with our modified credit facilities and bond covenants for the foreseeable future.” Compl., ¶ 277 (emphasis
added).

Though plaintiffs do not explain the basis of their theory, the Court believes it is

grammatical in nature – the adjective “modified” applies to both nouns which follow it: “credit
facilities” and “bond covenants.”
Reasonable minds could disagree over whether a modifier should apply to all items
proximate to it. Cf. Lockhart v. United States, 577 U.S. 347, 351 (2016) (discussing the issue of
applying a qualifier to words or phrases which are in immediate contact with the qualifier, versus
applying a qualifier to words or phrases which are more remote). Yale’s statement leaves room for
interpretation. He did not say “modified credit facilities and modified bond covenants,” but he also
did not say “bond covenants and modified credit facilities.” Viewing the statement in isolation, the
Court finds plaintiff’s interpretation to be plausible – Yale’s phrasing could have implied that the
both the credit facilities and the bond covenants were being modified.
The problem, however, is that plaintiffs’ interpretation fails to account for context, which it
must. See City of Monroe Emps. Ret. Sys. v. Bridgestone Corp., 399 F.3d 651, 672 (6th Cir. 2005) (“The
context of statements is often telling.”). Courts must consider “the total mix of information
available” to a reasonable investor, id. at 669, particularly in a fraud-on-the-market case presuming
the existence of an efficient market which promptly digests publicly available information.
The most useful context comes from the statements Yale had already made during the
August 11 earnings call. He drew attention to the “significant news” of a “pending credit facilities
modification.” He expected lender consent for “such modification” and anticipated closing “on the
revised facility” by the end of the week. It was this “modification” (in the singular, not the plural)
which Yale felt would be WPG’s bridge to the other side of the pandemic. Yale did not mention
any modification to the bond covenants. Even in the remarks immediately preceding the one at
issue, Yale drew a distinction between the credit facilities – for which the “modification” was WPG’s
focus – and the bond covenants – for which “compliance” was the focus. Compl., ¶ 277. At no
time during the earnings call did Yale say there had been, or would be, modifications to the bond
covenants.

34

And at no other time are defendants alleged to have told the market that WPG had entered
into modifications of the bond covenants. According to the Complaint, WPG made an effort to
renegotiate the bond covenants, but senior noteholders were too “disorganized” for a deal to
happen. Compl., ¶ 239. The Complaint does not allege that defendants told the market that a deal
was pending or had been closed.
In larger context, Yale prefaced his comments by referring to “[o]bviously, the significant
news . . . .” A day earlier, on August 10, WPG had filed a Form 8-K with the SEC in which it
disclosed that that the company “has received the requisite lender consents for the modification of
its existing $1.3B credit facilities.” 9

WPG made no mention of a modification to the bond

covenants in the Form 8-K.
The Court thus finds that the Complaint fails to plausibly allege that Yale misrepresented
that WPG was modifying its bond covenants.
b.

Loss Causation

Even if Yale’s comments could have been construed by a reasonable investor to suggest that
the bond covenants were being modified, the Complaint fails to allege the element of loss causation.
WPG announced to the public on August 17 that it had formally signed agreements to modify the
credit facilities. See Compl. ¶ 235. To the extent Yale’s August 11 comments raised the possibility in
an investor’s mind that the deal on which WPG “expect[ed] to close by the end of the week” would
include modifications to both the credit facilities and the bond covenants, the August 17
announcement dispelled that notion. See Compl. ¶¶ 232, 233, 235.
The August 17 press release to which the Complaint refers was included in WPG’s Form 8K filed on the same day. The Form 8-K disclosed that WPG had entered into modifications of only
its “existing credit facilities,” which were defined in the Form 8-K as the term loans and Revolver.
No mention was made of modifications to the bond covenants. 10 The press release itself was
entitled, “Washington Prime Group Announces Amendments to Its Credit Facilities.” 11 Conforti
stated in the release, “I’m pleased to announce the successful modification of our credit facilities
without any reduction to their size of change to maturity dates.” Again, no mention was made of a
modification to the bond covenants.

9
10
11

https://www.sec.gov/Archives/edgar/data/1594686/000159468620000026/exhibit991-2q20.htm
https://www.sec.gov/ixviewer/ix.html?doc=/Archives/edgar/data/1594686/000143774920018190/
wpg20200815_8k.htm
https://www.sec.gov/Archives/edgar/data/1594686/000143774920018190/ex_200032.htm

35

In order for plaintiffs to plead loss causation, they must allege a drop in share price after
WPG disclosed on August 17, 2020 that only the credit facilities had been modified. See Indiana
State, 583 F.3d at 944 (holding that loss causation had not been adequately pled because plaintiff
failed to “show that an economic loss occurred after the truth behind the misrepresentation or
omission became known to the market”) (citing Dura, 544 U.S. at 346–47). The Complaint fails to
make such an allegation. The first corrective disclosure and corresponding drop in share value
which are alleged in the Complaint did not occur until November 6, 2020, when WPG issued a
statement that it had exceeded its debt covenants. See Compl., ¶ 244.
Accordingly, the Court finds that plaintiffs’ claims as to the statements Yale made during the
August 11, 2020 earnings call fail as a matter of law.
B.

September 15, 2020 Conference
1.

Two Theories Asserted

At a real estate conference on September 15, 2020, Yale responded to a question asking him
to “describe the modification of your $1.3 billion credit facility” as follows:
Yes. So, I mean, we’re certainly pleased to be able to execute on that, have the
support of our debt partners, really a bridge to get through the other side of the
pandemic. That was important to us, to make sure we got the flexibility that
we believe we needed with our covenants. We also wanted to make sure that
we had the flexibility to continue to run our business. And there’s ample
flexibility in the modification for us to continue to reinvest through our
redevelopment, which is most critical. And it did come at a cost in terms of
pricing. We had to provide some temporary collateral, but not full security. And I
think it demonstrates the fact that our banking partners believe there’s clearly a path
forward for us. And they’re being supportive because if they didn’t, they probably
would have taken a different tack with regard to the modification. So, simply put, it
provides a bridge to the other side. And that’s what we were looking for.
Compl., ¶ 279 (emphasis in the Complaint).
Conforti then added,
Yes. I mean, I’d just on just very quickly, they have our banking partners
throughout the capital structure. And I think it’s a function of us focusing on
operating infrastructure, tenant diversification, common area activation, adaptive
reuse, that we are the logical aggregator in this business. And our debt partners,
and again, throughout the capital stack, have in effect, told us as such. And
we are incrementalists. We are doing things on a step-by-step basis and this was a
very favorable outcome of every kind of modification. And they wouldn’t have been
– they wouldn’t have evidenced this flexibility if not for their belief in us, and just
stay tuned.
Id. (emphasis in the Complaint).
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The parties once more take different views of what the Complaint alleges to be false about
defendants’ statements. Defendants interpret the Complaint as alleging that Yale and Conforti
spoke falsely in referring to the credit facilities modification as “a bridge to the other side of the
pandemic” and as providing “the flexibility to continue to run our business.” Defendants contend
that the comments are nothing more than vague optimism.
Plaintiffs again do not squarely respond. In their view, Yale and Conforti misleadingly
“suggested” that WPG had the support of all of its creditors and had obtained relief on all of its
debt covenants (not only the credit facilities but also the bonds). Doc. 56 at PAGEID 1423.
The Court finds, as it did with Yale’s August 11 remarks, that the Complaint contains
allegations asserting both theories. See Compl., ¶ 238 (alleging that the modification had not made
“WPG’s position any more secure” and it would not be able to survive the pandemic), ¶ 280
(alleging that “WPG had not received any changes to the bond covenants” and did not have the
confidence of all of its creditors).
Even so, the Court again finds that both theories fail as a matter of law.
2.

Vague, Optimistic Statements are Not Material

The September 15 statements express the same type of optimism which the August 11 ones
did. Yale repeated his view that the credit facilities modification would be a “bridge to the other
side of the pandemic.” He reiterated his belief that it would provide the needed “flexibility” to
“continue to run our business.” He thought it showed WPG’s banking partners were “being
supportive” and believed there was a “path forward for us.” Conforti called the situation “a very
favorable outcome.” Yale cautioned that the modification came “at a cost in terms of pricing” and
that WPG had to provide temporary collateral.
The Court here too finds that Yale’s and Conforti’s comments are vague, loosely optimistic
statements of opinion – a conclusion which plaintiffs again do not attempt to dispute. While Yale
said WPG would stick to its plan of “reinvesting through our redevelopment,” defendants made no
promises and offered no concrete numbers or financial details as to how WPG would withstand the
pandemic. In sum, the Court finds that the comments at issue are not actionable. See In re Sona
Nanotech, Inc. Sec. Litig., 562 F. Supp. 3d 715, 725 (C.D. Cal. 2021) (“Plaintiffs claim this statement is
a misrepresentation because the statement presented a falsely optimistic picture for FDA submission
when the metrics of the clinical testing should have indicated otherwise. But this statement is just a
hopeful statement by Regan that did not come true.”).

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3.

Purported Statements about Modifying the Bond Covenants

Plaintiffs argue that defendants falsely “suggested” that WPG had the support of “all WPG’s
bankers and debt partners” and “had obtained covenant relief for all of its debt.” Doc. 56 at
PAGEID 1423. Once more, plaintiffs do not explain the basis for their theory, but the Court
believes a fair assumption is that plaintiffs would associate “banking partners” with the credit
facilities and “debt partners” with the bonds.

At the very least, plaintiffs would argue that

defendants, by suggesting they had the support of both types of partners throughout the capital
structure or stack, were implying that they had received across-the-board covenant relief.
The Court must reject this theory. In context, Yale and Conforti were responding to a
question about “the modification of your $1.3 billion credit facility.” They never stated that all of
WPG’s creditors had agreed to covenant relief or that WPG had obtained relief on all of WPG’s
debt. And though the two men vaguely suggested they had the support of WPG’s banking partners
and debt partners, they never represented that the support took the concrete form of a modification
or waiver of the bond covenants. As discussed above, defendants did not at any other time state
that WPG was modifying its bond covenants. The Complaint alleges that WPG tried to obtained
bond relied, but failed. The Complaint does not allege that WPG told investors that a deal was
pending or had been closed.
But even if Yale’s and Conforti’s comments could have caused a reasonable investor to
momentarily think the bond covenants were being modified, the Complaint again fails to allege the
element of loss causation. A Form 8-K and accompanying press release filed by WPG with the SEC
on the same day, September 15, contained no mention of relief to the bond covenants. 12 A
reasonable investor would have realized almost immediately that WPG had not obtained bond
covenant relief. Because the Complaint does not allege that WPG’s share price dropped when this
truth became known, plaintiffs have not properly pleaded loss causation.
Accordingly, the Court finds that plaintiffs’ claims as to defendants’ statements at the
September 15, 2020 conference fail as a matter of law.
VIII. Scheme Liability
Rule 10b-5, in addition to prohibiting the making of untrue statements of material fact in
connection with the sale of a securities, prohibits employing a “device, scheme, or artifice to

12

https://www.sec.gov/ixviewer/ix.html?doc=/Archives/edgar/data/0001594686/000143774920019000/
wpg20200915_8k.htm

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defraud” and engaging “in any act, practice, or course of business which operates or would operate
as a fraud or deceit upon any person.” 17 C.F.R. § 240.10b-5(a),(c). While there may be overlap
between a claim for scheme liability and a claim based on a misrepresentation or omission, scheme
liability must be based on “something beyond misstatements and omissions.” Sec. & Exch. Comm'n v.
Rio Tinto plc, 41 F.4th 47, 49 (2d Cir. 2022) (emphasis in original); see also Teamsters Loc. 237 Welfare
Fund v. ServiceMaster Glob. Holdings, Inc., 83 F.4th 514, 525 (6th Cir. 2023) (“Rules 10b–5(a) and (c)
encompass conduct beyond disclosure violations. . . . A scheme-liability claim is therefore different
and separate from a nondisclosure claim.”) (internal quotation marks omitted).
In their opposition to the motion to dismiss, plaintiffs contend that defendants failed to seek
dismissal of plaintiffs’ claims for scheme liability. Understandably, defendants reply that they did
not mention scheme liability in their motion because the Complaint does not purport to assert such
a claim. The actionable conduct identified in the Complaint concerns only defendants’ alleged
misrepresentations. Aside from recanting Rule 10b-5’s language, see Compl., ¶ 294, the Complaint
does not contain any substantive allegations supporting a theory of scheme liability based on
conduct beyond the alleged misstatements.
Plaintiffs, in arguing in that they have sufficiently pleaded a deceptive or manipulative act,
point back to the alleged misrepresentations. In particular, the acts they identify as being deceptive
are defendants’ communications with the investing public. See Doc. 56 at PAGEID 1426 (stating
that defendants engaged in deceptive conduct by “reporting” and “present[ing]” the inflated yield
numbers to investors). This reinforces the Court’s conclusion that the Complaint does not assert a
claim for scheme liability.
Plaintiffs nonetheless argue that defendants engaged in the deceptive act of making manual
adjustments to the deal sheets which were presented to WPG’s Investment Committee. The deal
sheets reflected WPG’s internal analysis of anticipated yield for the various redevelopment projects.
Defendants allegedly adjusted estimated income and estimated costs in order to increase the yield
numbers. See Compl., ¶ 110.
Plaintiffs cite S.E.C. v. City of Miami, Fla., 988 F. Supp. 2d 1343, 1351 (S.D. Fla. 2013), for
the proposition that a company commits a deceptive act if it prepares misleading financial
documents. But a critical distinction exists between City of Miami and this case. In that case and
others like it, false financial documents were presented to auditors, credit rating agencies, financial
institutions or other third parties to deceive them and accomplish a step in furtherance of the
scheme, such as obtaining a clean audit or favorable credit rating. The company’s scheme in those
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cases was to deceive external systems – audits, credit ratings, etc. – in order to maintain or increase
the desirability of the company’s securities in the eyes of investors. See, e.g., City of Miami., 988 F.
Supp. 2d at 1351 (auditor and credit ratings agency); S.E.C. v. AgFeed Indus., Inc., No. 3:14-CV-00663,
2016 WL 10934942, at *15 (M.D. Tenn. July 21, 2016) (outside advisors).
In contrast, WPG’s adjusted deal sheets went nowhere beyond its own managers. There is
no allegation that the deal sheets were externally distributed, examined, or reviewed. Defendants’
actions in adjusting the deal sheets thus did not “operate as a fraud or deceit upon any person,” as is
required for a deceptive act to support a claim of scheme liability. 17 C.F.R. § 240.10b-5(c).
IV.

Section 20(a) Claim
The Complaint asserts a claim for control person liability under Sections 20(a) of the

Securities Exchange Act, 15 U.S.C § 78t(a). A § 20(a) claim is derivative of a § 10(b) claim and thus
“there can be no liability under § 20(a) without an underlying violation of securities law.” City of
Taylor Gen. Emps. Ret. Sys. v. Astec Indus., Inc., 29 F.4th 802, 816 (6th Cir. 2022); see also Dougherty, 905
F.3d at 984. Because the Court has found that the Complaint fails to state a claim under § 10(b), the
control person claim must be dismissed.
X.

Conclusion
Accordingly, defendants’ motion to dismiss (doc. 52) is GRANTED.

s/ James L. Graham
JAMES L. GRAHAM
United States District Judge
DATE: March 27, 2024

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