Land and Buildings Investment Management, LLC v. Taubman
5:17-cv-11576
E.D. Mich.Aug 16, 2017Background
- Land and Buildings (shareholder) sued Taubman Centers and related Taubman family entities, alleging the company’s April 2017 proxy was false/misleading under § 14(a) because it understated the value of Series B preferred stock and therefore misstated whether the Taubman family exceeded a charter ownership cap (8.23%).
- Series B preferred shares were issued in 1998 to TRG partners, carry voting rights (stapled to TRG partnership units), have nominal liquidation value ($.001), and are convertible at 14,000 Series B to 1 common share (proxy states Series B = 1/14,000 of a common share).
- Plaintiff’s theory: Series B should be valued far higher (considering stapled TRG units), which would put Taubman family voting/value over the 8.23% ownership limit and render votes at the June 1, 2017 meeting invalid.
- Taubman Centers filed a supplemental proxy attaching Plaintiff’s complaint and explaining the Board’s valuation determination before the meeting.
- The charter expressly sets the Series B conversion/nominal value formula and delegates final, binding authority to the Board to resolve questions about application of the ownership limit (including market price and total value).
- District court granted Defendants’ Rule 12(b)(6) motion, dismissing Count I (§ 14(a)), Count II (breach of charter/contract), and Count III (declaratory relief).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether proxy was false/misleading under § 14(a) for valuing Series B at 1/14,000 | Proxy misstates Series B value and thus concealed that Taubmans exceed 8.23% cap | Proxy disclosed the charter valuation; Plaintiff’s alternate legal valuation need not be adopted or disclosed | Dismissed — no actionable misrepresentation; company need not disclose disputed legal theories |
| Whether Taubman had duty to disclose Plaintiff’s valuation theory / lawsuit in proxy prior to vote | Taubman should have disclosed Plaintiff’s valuation theory and claim that charter was breached | Company filed a supplemental proxy attaching the complaint before the meeting; no further duty to adopt plaintiff’s theory | Dismissed — supplemental disclosure cured any defect and no obligation to present opposing legal theories |
| Whether allowing Taubman family holdings to vote breached the charter’s 8.23% ownership limit | Series B should be valued differently (including stapled TRG units), so holdings exceed 8.23% and breach charter | Charter defines Series B value and conversion; Board’s determination is final and binding | Dismissed — claim contradicted by charter’s valuation formula and Board’s conclusive authority |
| Whether declaratory relief survives after substantive claims fail | Plaintiff seeks declaration that votes/meeting invalid | Defendants argue underlying claims fail so no live controversy | Dismissed — declaratory claim dismissed because underlying causes of action are dismissed |
Key Cases Cited
- Mills v. Electric Auto-Lite Co., 396 U.S. 375 (explaining purpose of proxy disclosure rules)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (pleading standard: plausibility)
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading standard and inference drawing)
- Tracinda Corp. v. DaimlerChrysler AG, 502 F.3d 212 (elements of a § 14(a) claim)
- Bolger v. First State Fin. Servs., 759 F. Supp. 182 (no duty to disclose disputed legal theories in proxy)
- Hensley Mfg. v. ProPride, Inc., 579 F.3d 603 (standards for considering pleadings on motion to dismiss)
- KSR Int'l Co. v. Delphi Auto Sys. LLC, 523 Fed. Appx. 357 (dismissal appropriate where claim is directly refuted by the contract cited in the complaint)