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Stender v. Archstone-Smith Operating Trust

United States District Court, D. Colorado

October 14, 2014

STEVEN A. STENDER, HAROLD SILVER, and INFINITY CLARK STREET OPERATING, L.L.C., on behalf of themselves and all others similarly situated, Plaintiffs,


WILLIAM J. MARTÍNEZ, District Judge.

Plaintiffs Steven A. Stender, Harold Silver, and Infinity Clark Street Operating (collectively "Plaintiffs") bring this putative class action against Defendants Archstone-Smith Operating Trust ("Archstone") and others (collectively "Defendants") arising out of a 2007 transaction in which the publicly held Archstone-Smith Real Estate Investment Trust ("Archstone REIT") was taken private. (Sec. Am. Compl. ("SAC") (ECF No. 266) pp. 2-4.)

Before the Court is Defendants' Motion to Dismiss the Second Amended Complaint for Failure to State a Claim ("Motion"). (ECF No. 288.) For the reasons set forth below, the Motion is granted in part and denied in part.


As the Court has previously noted, this case has a long and tortured history. In this Order, the Court will recite only those portions of the procedural history necessary to resolve the instant Motion.

Plaintiffs initiated this action on November 30, 2007 by filing a class action Complaint alleging breach of contract and breach of fiduciary duty. (ECF No. 1.) The case was originally assigned to former United States District Judge Edward Nottingham. (ECF No. 2.) In lieu of an answer, Defendants moved to dismiss all claims, arguing that some claims were subject to an arbitration clause and others failed to state a claim upon which relief could be granted. (ECF No. 29.) On September 30, 2008, Judge Nottingham granted Defendants' motion, finding that Plaintiffs' claim related to the tax deferral agreement was subject to arbitration (" Stender I "). (ECF No. 76.) Judge Nottingham also found that Plaintiffs failed to state a claim for breach of fiduciary duty and dismissed those claims with prejudice. ( Id. )

Plaintiffs moved for reconsideration of the dismissal order arguing that, because Stender I found that Plaintiffs had failed to allege sufficient facts to state a claim, they should be afforded the opportunity to file an amended complaint. (ECF No. 78.) While this motion was pending, the case was reassigned to United States District Judge Robert E. Blackburn. (ECF No. 81.) Judge Blackburn granted Plaintiffs' motion to reconsider, and ruled that Plaintiffs should be allowed to file an amended complaint. (ECF No. 101.) However, Judge Blackburn did not accept Plaintiffs' tendered amended complaint at that time, instead administratively closing the case pending conclusion of the arbitration of the claim related to the tax deferral agreement. ( Id. )

Upon the undersigned's appointment, the case was again reassigned. (ECF No. 131.) The Court permitted Plaintiffs to file an amended complaint, but continued the stay of litigation until the arbitration was resolved and administratively closed the case. (ECF Nos. 150, 159.)

Upon conclusion of the arbitration, the Court reopened this matter. (ECF No. 188.) On Defendants' motion, the Court confirmed the arbitrator's award in favor of Defendants. (ECF Nos. 184, 243.) Plaintiffs then filed their Second Amended Complaint ("SAC"), which is the operative pleading in this case. (ECF No. 266.) In response, Defendants filed the instant Motion. (ECF No. 288.)

The pertinent facts pled in the SAC are as follows. Up until early 2007, Defendant Archstone REIT was one of the largest publicly held real estate investment trusts[1] in the United States. (SAC ¶ 44.) The Archstone REIT held nearly all of its assets in the Archstone UPREIT[2]. ( Id. ) The Archstone REIT was the sole trustee of the Archstone UPREIT, and was responsible for its strategic direction, as well as management and administration of all the properties the Archstone UPREIT owned. ( Id. ¶ 83.) Archstone REIT owned nearly 90 percent of Archstone UPREIT's beneficial interests in the form of A-2 Common Units. ( Id. ¶¶ 44-45.) The Archstone UPREIT was governed by a Declaration of Trust ("DOT").

In the late 1990s, Plaintiffs invested in various Archstone-predecessor UPREITS, receiving what are referred to as A-1 units. (SAC ¶¶ 5, 76.) As of May 2007, Plaintiffs and the proposed class held approximately 11 percent of the Archstone UPREIT in the form of A-1 units. ( Id. ¶ 45.) The A-1 units were not investments in the Archstone REIT, but were common units in the Archstone UPREIT. ( Id. ¶ 5.) Plaintiffs chose to invest in the A-1 units of the Archstone UPREIT in exchange for the contractual promise that, for some period of time after the closings of their real estate holdings, the UPREIT could not dispose of any interest in the properties in a manner that resulted in Plaintiffs realizing any taxable gain. ( Id. ¶ 76.) If any such gain was realized, the UPREITs were obligated to reimburse Plaintiffs in that amount. ( Id. ) These contractual provisions were referred to as "tax protection agreements". ( Id. ) The tax protection agreements allowed Plaintiffs to obtain the benefits of a broader portfolio of investments, without compromising their ability to plan for the tax consequences resulting from the disposition of any property. ( Id. ¶ 77.)

Plaintiffs were also drawn to contribute their capital to Archstone UPREIT because they would be able to redeem their units at will for cash or tradable common stock. ( Id. ¶ 78, 90.) Plaintiff also found favorable the DOT's requirement that Archstone UPREIT pay out 100 percent of its taxable income, because this afforded the investor a regular cash flow. ( Id. ¶¶ 78-79.)

On May 2, 2007, Defendant Tishman-Lehman Partnership ("TLP") submitted a written indication of interest seeking to acquire the Archstone REIT and UPREIT for a cash purchase price of $64 per share. (SAC ¶ 92.) Two weeks later, Archstone REIT's board of trustees became aware of TLP's concerns regarding the "magnitude of the built-in gain associated with certain of Archstone's properties that are subject to tax protection agreements with operating trust unitholders and the magnitude of the increase in property taxes as a result of the transaction." ( Id. ¶ 93.) On May 23, 2007, TLP rescinded its original offer of $64 per unit, and instead offered a price of $60 per unit. ( Id. ¶ 96.) This price reduction was primarily driven by the magnitude and scope of the tax protection agreements. ( Id. ) Archstone REIT negotiated with TLP over the purchase price, and they ultimately agreed on $60.75 per unit, conditioned on TLP's refusal to pay out a third-quarter dividend that was owed to A-1 unit holders. ( Id. ¶ 99.)

On May 29, 2007, Archstone REIT publicly announced that it had signed a contract to merge with TLP ("Merger Agreement") in a transaction valued at approximately $22.2 billion dollars (the "Merger"). (SAC ¶ 100.) The Merger Agreement terminated the A-1 units and required holders thereof to choose between two options: a cash payout of $60.75 per unit or the same number of a newly-created Series O unit. ( Id. ¶ 105.) The Merger Agreement stated that River Acquisition (MD), LP assumed "all properties, rights, privileges, purposes and powers and debts, duties and liabilities" of the Archstone REIT. ( Id. ¶ 104.) Because the Merger Agreement eliminated the A-1 shares, River Acquisition assumed nothing with regard to the A-1 unit holders. ( Id. ) Plaintiffs contend that the Series O units had inferior economic characteristics to the A-1 units, including the possibility of the Series O units lacking tax deferred status. ( Id. ¶ 122.) Plaintiffs allege that the Merger failed to "acknowledge and account for the superior nature of the A-1 units over the A-2 units." ( Id. ¶ 126.)

After the Merger, Archstone REIT caused billions of dollars in assets held by Archstone UPREIT to be transferred to itself. (SAC ¶ 124.) The Archstone REIT then merged with the Tishman-Speyer Partnership, which became the sole trustee of the Archstone UPREIT. ( Id. ¶ 125.) Plaintiffs allege that the "sole purpose of leveraging the assets was to permit an impermissible distribution to the A-2 Unitholders to fund the acquisition of the Archstone REIT." ( Id. )

On these facts, Plaintiffs' SAC brings the following claims: breach of fiduciary duty against Archstone REIT in both its capacity as trustee of the Archstone UPREIT and as majority shareholder; aiding and abetting the breach of fiduciary duty against the Tishman-Speyer Partnership; breach of contract against the Archstone UPREIT and the Archstone REIT; tortious interference with contract against River Acquisition (MD) LP and the Tishman Speyer Partnership; civil conspiracy against Tishman-Speyer, and unjust enrichment against River Acquisition (MD) LP and Tishman-Speyer. (SAC pp. 44-60.)

On March 4, 2014, Defendants filed the instant Motion which seeks dismissal of each of these claims. (ECF No. 288.) Plaintiffs filed a response (ECF No. 299), and Defendants filed a reply (ECF No. 305.)


Under Federal Rule of Civil Procedure 12(b)(6), a defendant may move to dismiss a claim in a complaint for "failure to state a claim upon which relief can be granted." In evaluating such a motion, a court must "assume the truth of the plaintiff's well-pleaded factual allegations and view them in the light most favorable to the plaintiff." Ridge at Red Hawk, L.L.C. v. Schneider, 493 F.3d 1174, 1177 (10th Cir. 2007). In ruling on such a motion, the dispositive inquiry is "whether the complaint contains enough facts to state a claim to relief that is plausible on its face.'" Id. (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Granting a motion to dismiss "is a harsh remedy which must be cautiously studied, not only to effectuate the spirit of the liberal rules of pleading but also to protect the interests of justice." Dias v. City & Cnty. of Denver, 567 F.3d 1169, 1178 (10th Cir. 2009) (quotation marks omitted). "Thus, a well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable, and that a recovery is very remote and unlikely.'" Id. (quoting Twombly, 550 U.S. at 556).


Defendants move to dismiss all of the claims brought in Plaintiffs' SAC. The Court will ...

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