NNN Durham Office Portfolio 1, LLC v. Highwoods Realty Limited Partnership

• Citation: 2013 NCBC 12
• Decision Date: 19 February 2013
• Docket Number: 12 CVS 3945
• Court: Superior Courts of Law and Equity of North Carolina
• Parties: NNN DURHAM OFFICE PORTFOLIO 1, LLC; et. al., Plaintiffs, v. HIGHWOODS REALTY LIMITED PARTNERSHIP; et. al., Defendants.

2013 NCBC 12

NNN DURHAM OFFICE PORTFOLIO 1, LLC; et. al., Plaintiffs, v. HIGHWOODS REALTY LIMITED PARTNERSHIP; et. al., Defendants.

No. 12 CVS 3945

Superior Court of North Carolina, Durham

February 19, 2013

Stark Law Group, PLLC by Thomas H. Stark and Penry Riemann, PLLC by Andy Penry for Plaintiffs.

Manning, Fulton & Skinner, P.A. by Michael T. Medford for Defendants Thomas Linderman Graham, Inc. and Grubb & Ellis/Thomas Linderman Graham.

Ellis & Winters LLP by Jonathan D. Sasser and Jeremy M. Falcone for Defendants Highwoods Realty Limited Partnership; Highwoods DLF 98/29, LLC; Highwoods DLF, LLC; and Highwoods Properties, Inc.

ORDER AND OPINION

GALE, JUDGE.

{1} THIS MATTER is before the court on Defendants Highwoods Realty Limited Partnership; Highwoods DLF 98/29, LLC; Highwoods DLF, LLC; and Highwoods Properties, Inc.'s Motion to Dismiss Plaintiffs' Complaint and on Thomas Linderman's Motion to Dismiss Re-Filed Action ("Motions") pursuant to Rules 12(b)(6) and 9(b) of the North Carolina Rules of Civil Procedure ("Rule" or "Rules"). For the reasons stated below, the Motions are GRANTED in part and DENIED in part.

I. PARTIES

{2} Plaintiffs are purchasers of tenant-in-common ("TIC") interests in five parcels of real property located at 3414 Duke Street, 4117 North Roxboro Road, 3404 North Duke Street, 4101 North Roxboro Road, and 4020 North Roxboro Road, all in Durham, North Carolina (collectively referred to as the "Subject Property"). (Compl. ¶ 46.) Plaintiffs include the individual purchasers and the limited liability companies ("LLCs") formed by the individuals for the purpose of purchasing their interests and through which the interests were purchased. (Compl. ¶¶ 2–31, 98.)

{3} Defendant Highwoods DLF 98/29, LLC is a Delaware corporation with its principal place of business in Raleigh, North Carolina, and is the successor in interest to the seller of the Subject Property, Highwoods DLF 98/29, L.P. (Compl. ¶ 32.) Defendant Highwoods DLF, LLC, a Delaware LLC, was the sole general partner of Highwoods DLF 98/29, L.P. (Compl. ¶ 33.) Defendant Highwoods Realty Limited Partnership is a North Carolina limited partnership, and is the sole member of Highwoods DLF, LLC. Defendant Highwoods Properties, Inc. is a Maryland corporation with its principal place of business in Raleigh, North Carolina, and is the sole general partner of Highwoods Realty Limited Partnership. These various Defendants are collectively referred to as "Highwoods."

{4} Defendant Thomas Linderman Graham, Inc. ("TLG") is a North Carolina corporation with its principal place of business in Raleigh, North Carolina, and was retained by Highwoods as the exclusive selling agent for the Subject Property. (Compl. ¶¶ 36, 63.) TLG sometimes does business under the trade name Grubb & Ellis | Thomas Linderman Graham. (Thomas Linderman's Br. in Supp. of Mot. to Dismiss Re-Filed Action (hereinafter "TLG Br. in Supp.") 6, 6 n.5.) Defendants TLG and Grubb & Ellis | Thomas Linderman Graham will collectively be referred to as "TLG." TLG and the Highwoods Defendants will collectively be referred to as "Defendants."

II. INTRODUCTION

{5} Plaintiffs brought suit against Highwoods and TLG alleging they made material misstatements which misled Plaintiffs into purchasing their TIC interests. After Highwoods retained TLG to seek a buyer for the Subject Property, TLG published a Confidential Offering Memorandum ("COM") to solicit potential purchasers. Triple Net Properties, LLC ("Triple Net") was selected as the final party with which Highwoods negotiated a binding purchase contract. Triple Net offered TIC interests in the Subject Property through a syndication which included a management contract, which it marketed with a Private Placement Memorandum ("PPM"). Highwoods deeded the separate TIC interests to the Plaintiff LLCs at closing, and Triple Net entered into contracts with Plaintiffs for management of the Subject Property. Highwoods was not a party to the PPM, retained no interest in the Subject Property after the sale, and was not involved in the ongoing property management after the sale.

{6} In this action, Plaintiffs assert both common law claims and statutory claims under the Unfair and Deceptive Trade Practices Act ("UDTPA") and the North Carolina Securities Act ("NCSA"). Plaintiffs have separately sued Triple Net in an action now pending before this court, NNN Durham Office Portfolio 1, LLC v. Grubb & Ellis Co., No. 10 CVS 4392, the pleadings of which are available at the court's website at www.ncbusinesscourt.net.

{7} The Motions require that Plaintiffs' claims be assessed in accord with the recognized elements of the various common law claims and the UDTPA statutory claim, but further require the court to assess previously unsettled issues regarding the scope and application of the NCSA. In particular, the court must determine whether Plaintiffs have adequately pled that the TIC interests are a "security" subject to the NCSA, and if so, whether Plaintiffs have further alleged facts adequate to present either a primary or secondary liability claim against Defendants under that Act.

{8} The court reserves further consideration as necessary for any final judgment, but it concludes for purposes of the present Motions that Plaintiffs purchased a "security" from Triple Net. The court has further assumed without deciding that Plaintiffs can demonstrate a primary violation under the NCSA by Triple Net. The court concludes Plaintiffs have adequately stated a claim of secondary liability against Defendants under the NCSA, that the conspiracy claim survives but must be restricted to conspiracy to violate the NCSA, and that Plaintiffs' other claims should be dismissed pursuant to Rule 12(b)(6).

III. PROCEDURAL HISTORY

{9} Plaintiffs first brought suit in April 2010. That case was dismissed without prejudice pursuant to Rule 41(a)(2) on July 6, 2011. Plaintiffs timely re-filed the present lawsuit on July 6, 2012. The case was designated to the Business Court by Order of Chief Justice Sarah Parker dated July 11, 2012 and assigned to the undersigned on July 12, 2012.

{10} Plaintiffs bring claims for (1) fraud; (2) fraud in the inducement; (3) violation of the NCSA, N.C. Gen. Stat. §§ 78A-1–66 (2013); (4) violation of the UDTPA, N.C. Gen. Stat. §§ 75-1.1 (2012); (5) negligent misrepresentation; and (6) civil conspiracy. (Compl. ¶¶ 224–66.) Plaintiffs seek both compensatory and punitive damages pursuant to North Carolina General Statute § 1D-1. (Compl. ¶¶ 267–71.)

{11} The Highwoods Defendants filed their Motion to Dismiss on August 6, 2012, and TLG filed its Motion to Dismiss on August 23, 2012. The Motions have been fully briefed, a hearing was held on November 19, 2012, and the matter is ripe for disposition.

IV. FACTUAL BACKGROUND

{12} The court does not make findings of fact in connection with the Motions, as a motion to dismiss "does not present the merits, but only [determines] whether the merits may be reached." Concrete Serv. Corp. v. Investors Grp., Inc., 79 N.C.App. 678, 681, 340 S.E.2d 755, 758 (1986). The following facts are stated to provide context for the court's opinion and are construed in favor of the Plaintiffs, with the court drawing permissible inferences not inconsistent with the facts alleged. The court is not required to accept Plaintiffs' legal conclusions. Where appropriate, the court may, on a Rule 12(b)(6) motion, consider documents attached to or effectively incorporated by the allegations of the Complaint. Coley v. N.C. Nat'l Bank, 41 N.C.App. 121, 126–27, 254 S.E.2d 217, 220 (1979); Brackett v. SGL Carbon Corp., 158 N.C.App. 252, 255, 580 S.E.2d 757, 759 (2003).

A. Duke University As Tenants of the Subject Property

{13} The Subject Property consists of five office buildings owned at relevant times by Highwoods. In 2006 two tenants from Duke University Health System, Duke's Patient Revenue Management Organization ("PRMO") and Duke Pediatrics, together occupied 52% of the Subject Property's office space. (Compl. ¶ 53.) Duke PRMO's leases were set to expire in 2009 and 2010. (Compl. ¶ 56.)

{14} In September, 2006, Duke began considering the possible relocation of its PRMO from the Subject Property to Research Triangle Park in Raleigh, North Carolina and retained Corporate Realty Advisors ("CRA") to help it solicit bids to build a new PRMO facility. (Compl. ¶¶ 57–58.) Sometime prior to September 12, 2006, Highwoods indicated its willingness to build a new facility for PRMO and to accommodate PRMO's leaving the Subject Property prior to the expiration of its lease. (Compl. ¶ 59.) Around this same time CRA and Duke also discussed the possibility of building a new facility with another developer, Gary M. Hoch. (Compl. ¶ 61.)

{15} In or before October 2006, Highwoods decided to sell the Subject Property. Highwoods executed an Exclusive Right to Sell Listing Agreement with TLG on October 24, 2006. (Compl. ¶ 63; Compl. Ex. D.)

B. TLG's Confidential Offering Memorandum and its Assessment of Duke's Renewal Probability

{16} In November 2006, TLG prepared a Confidential Offering Memorandum ("COM") to solicit interest from potential purchasers of the Subject Property. (Compl. ¶¶ 67–68; Compl. Ex. E.) Its terms provided that information was "being provided solely to facilitate the Prospective Purchaser's own due diligence for which it shall be fully and solely responsible." (Compl. Ex. E.)

{17} The COM described Duke's strength as a primary tenant, the Subject Property's then-current tenancy of 99%, and the increasing value of the Durham real estate market. (Compl. Ex. E.) Plaintiffs allege that the COM makes the following "false statements of material facts":

• that "[v]alue-added opportunity exists as the majority of the portfolio will rollover in 2009 and 2010, allowing for renewals at the then market rate";

• "that the real estate market in Durham County was 'dramatically improving'" and "that rents would increase in 2

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