Moses v. Apple Hospitality Reit Inc., 14-CV-3131 (DLI)(SMG)
| Decision Date | 30 September 2016 |
| Docket Number | 14-CV-3131 (DLI)(SMG) |
| Parties | SUSAN MOSES, on behalf of herself and all others similarly situated, Plaintiff, v. APPLE HOSPITALITY REIT INC., Defendant. |
| Court | U.S. District Court — Eastern District of New York |
Before the Court is Apple Hospitality REIT Inc.'s ("Defendant") Motion to Dismiss the Second Amended Class Action Complaint, (Second Am. Compl. ("SAC"), Dkt. Entry No. 21), for failure to state a claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure. (See Mem. of L. in Supp. of Def's. Mot. to Dismiss ( ), Dkt. Entry No. 25.) Plaintiff opposes. (See Pl.'s Mem. of L. in Opp. ("Pl.'s Opp'n"), Dkt. Entry No. 26.) For the reasons set forth below, Defendant's motion is granted in part and denied in part.
The Court assumes familiarity with the factual and procedural history of this action, as set forth in the Court's March 9, 2015, Memorandum and Order (the "Decision" Dkt. Entry No. 19.)1 Nonetheless, the Court provides a brief summary of the case as it relates to this decision.
On March 9, 2015, the Court issued the Decision granting Defendants' motion to dismiss the First Amended Complaint ("FAC"). In the Decision, the Court dismissed all of Plaintiff's claims, but allowed Plaintiff to amend only her breach of contract claim. See Moses v. Apple Hosp.Reit Inc., 2015 WL 1014327, at *8 (E.D.N.Y. Mar. 9, 2015). On April 6, 2015, Plaintiff filed the SAC on behalf of herself and all then-existing and former shareholders of Apple Hospitality's REITs Seven ("A7") and Eight ("A8") who purchased shares or "units" of A7 and A8 under Defendant's Dividend Reinvestment Program ("DRIP") between July 17, 2007, and February 12, 2014. (SAC ¶ 1.) While the FAC asserted claims against multiple defendants, the SAC includes a breach of contract claim against only Apple Hospitality REIT Inc. (Id. at ¶ 17.)
Plaintiff's main allegation is that Defendant breached its "contract with Plaintiff and the Class by mispricing shares sold through the DRIP." (Id. at ¶ 2.) The DRIPs were created through S-3 public filings ("Forms S-3"). The Forms S-3 determined the pricing of the shares and stated that shares of A7 and A8 would be priced by one of two methods: "(a) the most recent price at which an unrelated person has purchased our units represents the fair market value of our units or, if the price is not indicative of fair value then; (b) in its good faith judgment, our board determines that there are other factors relevant to such fair market value." (Id.) Plaintiff alleges that Defendant did not price the shares according to these methods, but instead kept the share price under the DRIP at a constant $11.00 per share. (Id. at ¶¶ 2, 27, 29-33.)
Under Rule 8(a) of the Federal Rules of Civil Procedure, pleadings must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." Pleadings are to give the defendant "fair notice of what the claim is and the grounds upon which it rests." Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 346 (2005) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957), overruled in part on other grounds by Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007)). "The pleading standard Rule 8 announces does not require 'detailed factual allegations,' but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Ashcroft v. Iqbal, 556U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 555). "A pleading that offers 'labels and conclusions' or 'a formulaic recitation of the elements of a cause of action will not do.'" Id. (quoting Twombly, 550 U.S. at 555).
Under Rule 12(b)(6), a defendant may move, in lieu of an answer, for dismissal of a complaint for "failure to state a claim upon which relief can be granted." To resolve such a motion, courts "must accept as true all [factual] allegations contained in a complaint," but need not accept "legal conclusions." Iqbal, 556 U.S. at 678. For this reason, "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice" to insulate a claim against dismissal. Id. "[A] complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Id. (quoting Twombly, 550 U.S. at 570). Notably, courts may only consider the complaint itself, documents that are attached to or referenced in the complaint, documents that the plaintiff relied on in bringing suit and that are either in the plaintiff's possession or that the plaintiff knew of when bringing suit, and matters of which judicial notice may be taken. See, e.g., Roth v. Jennings, 489 F. 3d 499, 509 (2d Cir. 2007).
Since Plaintiff owned A8 shares, the parties do not dispute Plaintiff's Article III standing to assert the breach of contract claim on behalf of A8 investors. (Def's. Mem. at 11-12.) Instead, Defendant argues that Plaintiff lacks Article III standing to bring the claim on behalf of A7 investors because she never purchased A7 shares. Plaintiff asserts that she has Article III standing, and that Defendant's argument instead goes to the question of whether she has class standing, which should be addressed at the class certification stage. (Pl.'s Opp'n at 15-18.) The Court agrees that Plaintiff has Article III standing and that Defendant's argument is premature.
"[N]ot all standing is created equal, and, historically, courts in the Second Circuit have distinguished between Article III, statutory, and class standing." Kacocha v. Nestle Purina Petcare Co., 2016 WL 4367991, at *5 (S.D.N.Y. Aug. 12, 2016). Article III standing "serves to identify those disputes which are appropriately resolved through the judicial process[.]" Whitmore v. Arkansas, 495 U.S. 149, 155 (1990). Article III of the Constitution mandates that a plaintiff have standing in order to maintain a lawsuit. To have standing, a plaintiff must demonstrate "(1) a personal injury in fact (2) that the challenged conduct of the defendant caused and (3) which a favorable decision will likely redress." Mahon v. Ticor Title Ins. Co., 683 F.3d 59, 62 (2d Cir. 2012). The standing requirement does not change when a complaint is styled as a class action. The Supreme Court has stated "[t]hat a suit may be a class action ... adds nothing to the question of standing, for even named plaintiffs who represent a class 'must allege and show that they personally have been injured, not that injury has been suffered by other, unidentified members of the class to which they belong and which they purport to represent.'" Lewis v. Casey, 518 U.S. 343, 357 (1996) (internal citation omitted).
In a class action, whether Plaintiff has class standing is distinct from Article III standing. See e.g., In re LIBOR-Based Fin. Instruments Antitrust Litig., 27 F. Supp.3d 447, 481 (S.D.N.Y. 2014) (); Policemen's Annuity & Ben. Fund of the City of Chicago v. Bank of Am., NA, 2013 WL 5328181, at *4 (S.D.N.Y. Sept. 23, 2013). Where class standing governs whether a named plaintiff could properly represent the interests of a class, Article III standing asks whether there is a case or controversy between the parties before the court. In NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co., 693 F.3d 145, 158 (2d Cir.2012), the Second Circuit held that it was possible to have Article III standing without having class standing and analyzed both inquiries separately.
In NECA-IBEW, the plaintiff brought a putative class action alleging violations of the Securities Act of 1933 concerning mortgage-backed certificates. These certificates were sold in seventeen separate offerings, through seventeen separate trusts, and with seventeen separate prospectus supplements. Id. at 148-149. The district court found that the plaintiff lacked standing to bring certain claims on behalf of the purchasers of certificates from fifteen of the seventeen trusts because the plaintiff only had purchased certificates from two of the trusts and had not demonstrated that the alleged injuries from those two trusts were the same as those suffered by purchases of the other certificates. Id. at 154. The Second Circuit reversed and first addressed the plaintiff's Article III standing and then its class standing. The Second Circuit found that the plaintiff had "Article III standing to sue defendants in its own right because it plausibly alleged (1) a diminution in the value of the [the certificates the plaintiff purchased] (2) as a result of defendants' inclusion of misleading statements in the [accompanying] registration statements and associated prospectuses that is (3) redressable through rights of action for damages under [the Securities Act of 1933]." Id. at 158.
After addressing Article III standing, the Second Circuit evaluated the named plaintiff's class standing. Id. In NECA, the Second Circuit reviewed Supreme Court case law and held that the "broad standard for class standing ... in a putative class action [is that] a plaintiff has class standing if he plausibly alleges (1) that he personally has suffered some actual injury as a result of the putatively illegal conduct of the defendant, and (2) that such conduct implicates the same set of concerns as the conduct alleged to have caused injury to other members of the putative class by the same defendants." Id. at 162 (internal citations and alterations omitted). Applying thestandard, the Second Circuit determined that the district court erred when it required NECA to demonstrate that its "injuries [were] the same" as those "suffered by purchasers of [Certificates from]" differing trusts backed by "distinct sets of loans." Id.
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