Hurtado v. Gramercy Prop. Trust
| Decision Date | 04 December 2019 |
| Docket Number | Civil Action No. ELH-18-2711 |
| Citation | 425 F.Supp.3d 496 |
| Parties | Raul HURTADO, et al., Plaintiffs v. GRAMERCY PROPERTY TRUST, et al., Defendants. |
| Court | U.S. District Court — District of Maryland |
Dana Whitehead McKee, Joseph B. Espo, Brown Goldstein and Levy LLP, Baltimore, MD, David T. Wissbroecker, Pro Hac Vice, Eun Jin Lee, Randall J. Baron, Pro Hac Vice, Robbins Geller Rudman and Dowd LLP, San Diego, CA, for Plaintiff.
Benjamin David Schuman, DLA Piper LLP US, John Bucher Isbister, Tydings and Rosenberg LLP, Baltimore, MD, Craig S. Waldman, Pro Hac Vice, Jonathan S. Kaplan, Pro Hac Vice, Simpson Thacher and Bartlett LLP, Alan Goudiss, Pro Hac Vice, Paula Howell Anderson, Pro Hac Vice, Shearman and Sterling LLP, New York, NY, for Defendant.
This stockholder class action suit centers on a 220-page proxy statement (the "Proxy") issued by Gramercy Property Trust ("Gramercy" or the "Company"), a real estate investment trust, in connection with the sale of Gramercy to an affiliate of the Blackstone Group L.P. ("Blackstone"). Plaintiff Raul Hurtado, a former shareholder of Gramercy, filed suit individually and on behalf of a putative class of shareholders against Gramercy; Gramercy's financial advisor, Morgan Stanley & Co., LLC ("Morgan Stanley"); and members of Gramercy's Board of Trustees (the "Board Defendants"),1 alleging that the Proxy was materially misleading, in violation of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act" or the "Act"), 15 U.S.C. §§ 78a et seq. , as well as Securities and Exchange Commission ("SEC") Rule 14a-9. ECF 1 (the "Complaint"). According to plaintiff, the Proxy was misleading because it omitted material information with respect to an analysis summarized in the Proxy that underpinned Morgan Stanley's determination that the merger was financially fair to Gramercy's shareholders (the "Fairness Opinion").
In particular, the Complaint contains two claims. Count I, lodged against all defendants, alleges a violation of § 14(a) of the Exchange Act and Rule 14a-9. ECF 1, ¶¶ 111-21. Count II, lodged against the Board Defendants, asserts a violation of § 20(a) of the Act. Id. ¶¶ 122-28. Plaintiff seeks compensatory damages and attorneys' fees and costs, as well as a declaratory judgment that defendants violated the Exchange Act. Id. at 26-27.
Gramercy and the Board Defendants filed a joint motion to dismiss for failure to state a claim, pursuant to Fed. R. Civ. P. 12(b)(6). ECF 26. It is supported by a memorandum of law. ECF 26-1 (collectively, the "Gramercy Motion"). Five exhibits are appended to the Gramercy Motion. ECF 26-2 to ECF 26-6. Morgan Stanley has also moved to dismiss the Complaint, pursuant to Rule 12(b)(6) (ECF 27), supported by a memorandum. ECF 27-1 (collectively, the "Morgan Stanley Motion"). The Morgan Stanley Motion also includes four exhibits. ECF 27-3 to ECF 27-6. Plaintiff opposes the motions (ECF 37), and defendants filed a joint reply. ECF 38.
No hearing is necessary to resolve the motions. See Local Rule 105(6). For the reasons that follow, I shall grant the motions (ECF 26, ECF 27).
I. Factual and Procedural Background2
Gramercy is a global real estate investment trust ("REIT"). ECF 1, ¶¶ 2, 31. A REIT "is a company that owns, operates or finances income-producing real estate." What's a REIT? , Nariet, https://www.reit.com/what-reit (last visited Dec. 4, 2019). Generally, REITs focus on a particular market sector. For example, "industrial REITs" hold properties such as warehouses and distribution centers. REIT Sectors , Nareit, https://www.reit.com/what-reit/reit-sectors (last visited Dec. 4, 2019). REITs that hold an assortment of properties are labeled "diversified REITs." Id.
In December 2015, Gramercy owned a mix of industrial and office properties in major markets throughout the United States and Europe. ECF 1, ¶ 32. At the time, its portfolio was approximately 48% office, 47% industrial, and 5% specialty retail. Id. ¶ 44. But, in early 2016, Gramercy announced its intent to grow its industrial holdings. Id. ¶ 34. Over the course of 2016, Gramercy sold over $1.5 billion in office assets and acquired $1.6 billion in industrial properties. Id. ¶ 35. Gramercy continued to focus on industrial properties throughout 2017. Id. ¶ 38.
Gramercy's Board of Trustees (the "Board") allegedly regarded Gramercy's repositioning as a "key transformation to the Company's core business." Id. ¶ 45. During a meeting held on April 26, 2017, the Board " ‘reviewed the Company's business plan and performance metrics comparing the Company to other REITs operating in the industrial and net lease sectors.’ " Id. ¶ 47. On October 25, 2017, the Board authorized a preliminary discussion with an industrial REIT to explore the possibility of a strategic transaction. Id. ¶ 49. And, on January 24, 2018, the Board met with Morgan Stanley, which was providing Gramercy with financial advisory services, to review " ‘the Company's recent financial performance and recent market developments affecting the Company, including the competitive environment for acquiring industrial real estate assets and the market valuations of the Company and peer companies.’ " Id. ¶ 51. By April 2018, Gramercy's portfolio was approximately 15% office, 81% industrial, and 4% specialty retail. Id. ¶ 44.
Due to Gramercy's swift transition, its financials "did not yet fully reflect the value of the Company's industrial portfolio." Id. ¶ 53; see id. ¶ 54. As a result, the S & P Index and the Morgan Stanley Capital International Index (the "MSCI"), major stock market indices, continued to classify Gramercy as a diversified REIT, as opposed to an industrial REIT. Id. ¶ 55. The market's perception of Gramercy as a diversified REIT was significant because industrial REITs were outperforming diversified REITs. Id. ¶¶ 55-57. Thus, plaintiff alleges that Gramercy "was undervalued and mispriced in the market." Id. ¶ 52.
On March 1, 2018, the Senior Managing Director of Blackstone's real estate group, Tyler Henritze, told Gramercy's Chief Executive Officer ("CEO"), Gordon DuGan, that Blackstone was interested in acquiring Gramercy. Id. ¶ 59; see ECF 26-2 at 44 (the "Proxy"). DuGan directed Henritze to contact Morgan Stanley. ECF 26-2 at 44. On April 3, 2018, Henritze spoke with a representative of Morgan Stanley to express Blackstone's interest in purchasing Gramercy because of Gramercy's industrial portfolio. ECF 1, ¶ 60. The next day, and again on April 11, 2018, Morgan Stanley invited Henritze to make an offer before the Board met on April 26, 2018. Id. ¶ 61.
Henritze informed Morgan Stanley on April 25, 2018, that Blackstone intended to propose a price of $26.50 per share to acquire Gramercy. ECF 26-2 at 47. However, Morgan Stanley advised Blackstone that the Board would view that price as inadequate. Id. On April 26, 2018, Blackstone submitted a bid, proposing an all-cash acquisition of Gramercy at $27.00 per share. ECF 1, ¶ 64; ECF 26-2 at 47.
Later the same day, the Board discussed Blackstone's proposal during its regularly scheduled meeting. ECF 26-2 at 47.3 Additionally, it reviewed other potential strategic transactions that Morgan Stanley had explored on Gramercy's behalf with other companies. Id. Ultimately, the Board directed Morgan Stanley to inform Blackstone that it would not pursue a transaction at $27 per share. Id. at 48. Blackstone responded on April 27, 2018, by increasing its proposed price to $27.30 per share, provided that Gramercy would agree not to issue its next scheduled dividend, or $27.00 per share with no restriction on Gramercy's ability to pay regular quarterly dividends prior to the closing of the acquisition. Id.
The Board held a telephonic meeting on April 28, 2018, to discuss the offer. Id. It decided to continue negotiating with Blackstone, with the goal of obtaining a higher price per common share and with terms that allowed Gramercy to solicit alternative acquisition proposals during the pendency of the merger. Id. at 49; see ECF 1, ¶ 65. Morgan Stanley relayed the Board's response to Blackstone. ECF 26-2 at 49; ECF 1, ¶ 66. Blackstone responded that it would not agree to Gramercy's proposed terms. ECF 26-2 at 49. However, it increased its offer to $27.50 per share. Id. Shortly thereafter, Blackstone submitted a letter confirming its proposal. Id. During a second telephonic meeting on April 28, 2019, the Board agreed to move forward with those terms and to provide Blackstone with additional due diligence information. Id.
Gramercy "held its first quarter 2018 earnings call" on May 1, 2018. ECF 1, ¶ 69. During the call, DuGan claimed that "the Company had finally been recognized and reclassified as an industrial REIT in the S & P and MSCI indices." Id. He stated, id. :
Today, Gramercy is roughly 85% industrial by value. We're the 8th largest owner in the United States, public or private, with a high-quality portfolio in major markets of, roughly, 77 million square feet. As part of that acknowledgment, or the acknowledgment of the shift in the business, as of April 30, as of yesterday, we changed our GIC classification at S & P from diversified to industrial. And similarly, for MSCI, our classification has changed. It's actually – it's as of April 30, but when our associate looked on the Bloomberg, we found we were still diversified yesterday, but as of this morning, we're industrial. So our MSCI classification has also changed to industrial. So that kicks in today.
On May 6, 2018, the Board met with Morgan Stanley and its counsel, Watchell, Lipton, Rosen & Katz ("Watchell"), to review the terms of Blackstone's offer. Id. ¶ 70. During the meeting, Morgan Stanley presented its opinion that the merger was financially fair to Gramercy's common shareholders. Id. ; ECF 26-2 at 50-51. And, Watchell reviewed the draft merger agreement with the Board and...
To continue reading
Request your trial
-
In re Greenlane Holdings, Inc. Sec. Litig.
...are widely circulated—the public availability of the information can weigh against materiality. See, e.g. , Hurtado v. Gramercy Prop. Tr. , 425 F. Supp. 3d 496, 521 (D. Md. 2019) ("It has long been established that ‘where information is equally available to both parties, a defendant should ......
-
Karp v. First Conn. Bancorp
...2019, Judge Hollander of this Court conducted a thorough analysis in a remarkably similar case in Hurtado v. Gramercy Property Trust, 425 F. Supp. 3d 496 (D. Md. 2019). In that case, Judge Hollander granted the motion to dismiss a similar cause of action as set forth in this case. The analy......