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Land and Buildings Investment Management, LLC v. Taubman Centers, Inc.

United States District Court, E.D. Michigan, Southern Division

August 16, 2017

LAND AND BUILDINGS INVESTMENT MANAGEMENT, LLC, a Delaware limited liability company, Plaintiff,
v.
TAUBMAN CENTERS, INC., a Michigan corporation, and Relief Defendants ROBERT S. TAUBMAN, WILLIAM S. TAUBMAN, and GAYLE TAUBMAN KALISMAN, R&W-TRG LLC, TAUBMAN VENTURES GROUP LLC, TG PARTNERS, and TF ASSOCIATES, LLC, Defendants.

          OPINION AND ORDER GRANTING DEFENDANTS' MOTION TO DISMISS

          JOHN CORBETT O'MEARA UNITED STATES DISTRICT JUDGE.

         Before the court is Defendants' motion to dismiss, filed June 23, 2017, which has been fully briefed. The court heard oral argument on August 10, 2017, and took the matter under advisement. For the reasons explained below, Defendants' motion is granted.

         BACKGROUND FACTS

         This action arises under ' 14(a) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78n(a). Plaintiff Land and Buildings Investment Management, LLC, contends that Defendant Taubman Centers, Inc. issued a materially false or misleading proxy statement in advance of the company's June 1, 2017 annual meeting of shareholders. Plaintiff also alleges that Defendant breached its articles of incorporation. To remedy the alleged proxy violations, Plaintiff seeks a new meeting or, alternatively, an order requiring Plaintiff's nominees to be seated on the board. See Amended Compl. (hereinafter ''Compl.'' at ¶ 1.

         Plaintiff is an investment advisor that has purchased shares in Taubman Centers, Inc. (''Taubman Centers''. Taubman Centers was founded by A. Alfred Taubman and went public as a real estate investment trust in 1992. Taubman Centers' only asset is approximately 71% of the Taubman Realty Group Limited Partnership ("TRG"), a limited partnership that owns and manages shopping centers. See Compl. at ¶¶ 26-27. The remaining 29% of TRG is owned predominately by members of the Taubman family, including siblings Robert S. Taubman, William S. Taubman, and Gayle Taubman Kalisman, through the Defendant entities R&W-TRG, LLC, Taubman Ventures Group, LLC, TG Partners, and TF Associates, LLC. Id. at ¶¶18-25, 27.

         As a result of a restructuring in 1998, the partnership committee that managed TRG's assets was eliminated. See 1998 Form 8-K at 1; 1992 Prospectus at 8.[1] Management of TRG's assets was moved to Taubman Centers' board. Id. This move would have disenfranchised TRG partners (such as the Taubman family), who had a right to four seats on TRG's partnership committee. To offset this loss of management rights at the TRG partnership level, Taubman Centers created a new class of preferred stock B Series B stock B which was issued only to TRG partners (other than Taubman Centers). See 1998 Form 8-K at 1; Compl. at ¶¶ 29-30. Each share of Series B Stock entitles the holder to one vote on all matters submitted to Taubman Centers' shareholders. Id. Series B stockholders are not entitled to dividends or earnings, and the shares have a liquidation value of $.001. Id. Series B stock is convertible to common stock at a ratio of 14, 000 shares of Series B preferred stock for one share of common stock. Id. In other words, Series B preferred stock gives TRG minority partners voting rights in Taubman Centers, but has nominal economic value. See also 1998 Form 10-K (approximately 31 million shares of Series B stock for an aggregate offering price of $38, 400). Taubman Centers' Series B preferred stock does not trade separately from units in the operating partnership (TRG); they are considered "stapled" together. Compl. at ¶30.

         For tax reasons, Taubman Centers' charter generally prohibits any single person from owning more than 8.23 percent of the value of its capital stock (common and preferred). See Restated Articles of Incorporation at 30; Compl. at ¶¶ 30-34. The Taubman family constitutes a "person" under the charter and therefore cannot own more than 8.23 percent of value Taubman Centers' stock. Taubman Centers' proxy materials state that the Taubman family's ownership of the Series B stock, with its nominal economic value, does not violate the 8.23 percent ownership limit. See 2017 Proxy Statement at 14.

         Plaintiff contends that the Taubman family's Series B stock in Taubman Centers provides the Taubman family with 30% of the voting power of Taubman Centers' shares. Plaintiff asserts that the value of the Series B stock should be considered in conjunction with the value of the Taubman family's partnership units in TRG (to which it is "stapled"), and that together the total ownership interest (30.2%) exceeds the 8.23 percent ownership limit. See Compl. at 45.

         Under the Taubman Centers' charter, stock owned in excess of the ownership limit are "Excess Shares" that may not be voted by the individual. Plaintiff contends that the Taubman family's Series B stock violates the 8.23 percent ownership limit and was improperly voted at the company's June 1, 2017 annual meeting.

         Plaintiff alleges that Taubman Centers' proxy statement contains the following false and misleading statements: (1) that Series B preferred stock has a value of 1/14, 000ths of the value of one share of common stock; (2) the Taubman family's ownership of Series B preferred stock does not violate the charter's 8.23 percent ownership limit; (3) the Taubman family is entitled to an approximately 30% voting interest at the annual meeting, based upon their ownership of Series B preferred stock. Plaintiff also claims that Taubman Centers violated its charter by permitting the Taubman family to own more than 8.23 percent of the value of the company's outstanding capital stock. Plaintiffs complaint alleges the following counts: Count I, violation of Section 14(a) of the Exchange Act; Count II, breach of contract based upon a breach of the charter; and Count III, declaratory judgment.

         LAW AND ANALYSIS

         I. Standard of Review

         Defendants seek dismissal pursuant to Fed.R.Civ.P. 12(b)(6). To survive a motion to dismiss, the plaintiff must allege facts that, if accepted as true, are sufficient ''to raise a right to relief above the speculative level" and to ''state a claim to relief that is plausible on its face.'' Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). See also Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949-50 (2009). AA claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.'' Id. at 1949. See also Hensley Manuf. v. Propride, Inc., 579 F.3d 603, 609 (6th Cir. 2009).

         II. Secti ...


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