Sadler v. Retail Props. of Am., Inc., 12 C 5882

• Decision Date: 10 June 2014
• Docket Number: No. 12 C 6743,No. 12 C 8091,No. 12 c 8522,No. 12 C 6433,No. 12 C 5882,12 C 5882,12 C 6433,12 C 6743,12 C 8091,12 c 8522
• Parties: LARRY SADLER, AS TRUSTEE OF THE LARRY R. SADLER IRREVOCABLE TRUST, individually and on behalf of all others similarly situated, Plaintiff, v. RETAIL PROPERTIES OF AMERICA, INC., et al., Defendants. CHARLES BABIN, et al., on behalf of themselves and all others similarly situated, Plaintiff, v. RETAIL PROPERTIES OF AMERICA, INC., et al., Defendants. RON R. SCHNIERSON, individually and on behalf of all others similarly situated, Plaintiff, v. RETAIL PROPERTIES OF AMERICA, INC., et al., Defendants. LOIS A. OLIVE LIVING TRUST DTD 6/25/02, et al., individually and on behalf of all others similarly situated, Plaintiff, v. RETAIL PROPERTIES OF AMERICA, INC., et al., Defendants. FRANK JEFFERS, on his own behalf of and on behalf of all those similarly situated, Plaintiff, v. RETAIL PROPERTIES OF AMERICA, INC., et al., Defendants.
• Court: U.S. District Court — Northern District of Illinois

LARRY SADLER, AS TRUSTEE OF THE LARRY R. SADLER IRREVOCABLE TRUST,
individually and on behalf of all others similarly situated, Plaintiff,
v.
RETAIL PROPERTIES OF AMERICA, INC., et al., Defendants.
CHARLES BABIN, et al., on behalf of themselves and all others similarly situated, Plaintiff,
v.
RETAIL PROPERTIES OF AMERICA, INC., et al., Defendants.
RON R. SCHNIERSON, individually and on behalf of all others similarly situated, Plaintiff,
v.
RETAIL PROPERTIES OF AMERICA, INC., et al., Defendants.
LOIS A. OLIVE LIVING TRUST DTD 6/25/02, et al., individually and on behalf of all
others similarly situated, Plaintiff,
v.
RETAIL PROPERTIES OF AMERICA, INC., et al., Defendants.
FRANK JEFFERS, on his own behalf of and on behalf of all those similarly situated, Plaintiff,
v.
RETAIL PROPERTIES OF AMERICA, INC., et al., Defendants.

No. 12 C 5882
No. 12 C 6433
No. 12 C 6743
No. 12 C 8091
No. 12 c 8522

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

Dated: June 10, 2014

Judge Thomas M. Durkin

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MEMORANDUM OPINION AND ORDER¹

This is a securities fraud action consisting of five related, individually-filed putative class actions (Sadler, 12 C 5882; Babin, 12 C 6433; Schnierson, 12 C 6743; Olive, 12 C 8091; Jeffers, 12 C 8522) against Retail Properties of America, Inc.

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("RPAI"), formerly known as Inland Western Real Estate Trust ("Inland Western");² and certain officers and directors of RPAI: Angela M. Aman, Kenneth H. Beard, Frank A. Catalano, Jr., Shane C. Garrison, Paul R. Gauvreau, Gerald M. Gorski, Steven P. Grimes, Brenda G. Gujral, Richard P. Imperiale, James W. Kleifges, Kenneth E. Masick, and Barbara A. Murphy (collectively, the "Individual Defendants").³ The Jeffers case also includes counts against Ameriprise Financial Services, Inc. ("Ameriprise"). Each of the cases arises out of the Individual Defendants' management and administration of RPAI, in addition to Ameriprise's role in procuring the sale of RPAI shares to its customers. The Defendants have each filed motions to dismiss. See Sadler, R. 80; Babin, R. 33; Schnierson, R. 35; Olive, R. 27; Jeffers, R. 47; R. 48. For the following reasons, the motions are granted, and the cases are dismissed.

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BACKGROUND⁴

I. The Parties

RPAI, formerly known as Inland Western, is a Maryland corporation that operates as a real estate investment trust ("REIT"). Sadler, R.1 ¶¶ 1-2, 12-13. It is one of the largest owners and operators of shopping centers in the United States, which includes stores such as Target, Best Buy, HomeDepot, and Kohl's. Id. ¶¶ 2, 12, 28. At all relevant times, RPAI's Board consisted of either eight or nine directors: Beard, Catalano, Gauvreau, Gorski, Grimes, Gujral,⁵ Imperiale, Masick, and Murphy. Babin R.1 ¶¶ 12-20. Seven members of the Board were independent directors: Beard, Catalano, Gauvreau, Gorski, Imperiale, Masick, and Murphy. Olive, R. 1 ¶¶ 20-26.

As an REIT, RPAI combines the capital of many investors to own and operate income-producing real estate locations. Sadler, R.1 ¶ 13. Prior to the public offering on April 5, 2012, when RPAI became listed on the New York Stock Exchange (the "2012 Offering," discussed below), "Inland Western was a public unlisted REIT,

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meaning that, (1) it was public because it was registered with the SEC, could sell to the investing public rather than only to 'qualified investors,' and was required to file reports with the SEC; and (2) it was unlisted because its securities were not listed on a national stock exchange." Id. ¶ 14. These types of shares are referred to as "non-traded REITs." Jeffers, R. 21 ¶ 10. Generally, an investor in non-traded REITs will look to hold the shares for a certain term (according to the complaints, for five to seven years), with the expectation that that the shares will eventually be listed on a national securities exchange. Id. If the investor seeks to sell the non-traded REITs before the term of investment expires, the person must resell his shares to the REIT's sponsor or through the secondary market which lacks a definite price point. Id. ¶ 11.

Ameriprise is a nationwide financial planner, advisor, and broker dealer of securities operating under the regulations of the Financial Industry Regulatory Authority ("FINRA"). Id. ¶ 45. It employs financial planners across the country who charge fees for investing the money of its clients. Id. ¶¶ 18-19. Jeffers alleges that Inland Western, and later RPAI, paid certain compensation to Ameriprise in return for Ameriprise "pushing" investors to invest in the Inland Western REIT in 2004 and 2005, as discussed below. Id. ¶¶ 14, 26. The Jeffers Plaintiffs further allege that Ameriprise's clients have purchased approximately $1.1 billion of Inland Western stock. Id. ¶ 71.

The Plaintiffs are shareholders of RPAI who purchased their shares sometime between 2004 and 2012. Some allege that they purchased shares in either

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2004, 2005, or both years.⁶ See Sadler, R. 1 ¶ 11; Schnierson, R. 1 ¶ 11; Olive, R. 1 ¶ 12; Jeffers, R. 21 ¶ 37. Others contend that they purchased shares through RPAI's Distribution Reinvestment Program ("DRP") sometime before April 5, 2012. See Sadler, R. 1 ¶ 11; Babin, R. 4 ¶ 59. This means they received additional shares of the company's stock instead of receiving a distribution. The Jeffers Plaintiffs were "advised or counseled by Ameriprise" to purchase shares of the REIT. Jeffers, R. 21 ¶ 57.

II. The Factual Allegations

RPAI, through two public offerings (one in 2004, the other in 2005) and a merger in 2007, issued 459,484,000 shares of "common stock" at $10.00 per share. Sadler, R.1 ¶ 29. This resulted in gross proceeds, including consideration from the merger, of $4,595,193,000. Id. As of December 31, 2011, RPAI had also issued shares through its DRP, which included 77,126,000 shares at prices from $6.85 to $10.00 per share resulting in gross proceeds of $719,799,000. Id. Additionally, from 2004 to the end of 2011, RPAI repurchased a total of 43,823,000 shares through its Share Repurchase Program ("SRP") at prices ranging from $9.25 to $10.00 per share, for a total cost of $432,487,000. Id. According to the Plaintiffs, as of December 31, 2011, RPAI had total shares outstanding of 483,822,000 and had realized total net offering proceeds of $4,882,572,000. Id. The Plaintiffs as a whole

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allege that they purchased Inland Western stock outright sometime in 2004 or 2005, or through the DRP.

Inland Western began having cash problems in 2008 and early 2009, eventually defaulting on six mortgage loans totaling $54,900,000 in May 2009. Id. ¶ 32. As a result, the Board voted to suspend the SRP, effective November 19, 2008. Id. ¶¶ 29, 31. In March 2009, Inland Western slashed its dividends by 90%. Id. ¶ 31. At that point, the only way for shareholders to sell their shares was in an allegedly "extremely thinly traded secondary market" or to accept the "occasional tender offer" from other companies. Id. ¶ 33.

On November 29, 2009, Inland Western transferred a portfolio of entities that owned 55 investment properties into "IW JV, a wholly-owned subsidiary of Inland Western." Id. ¶ 36. Inland Western then sought additional capital of $50 million from Inland Equity, a related party, in connection with a $625 million debt refinancing transaction involving J.P. Morgan Chase Bank. Id. ¶ 37. Inland Equity received a 23% non-controlling interest in IW JV from the deal. Id.

On December 21, 2009, CMG Acquisition Co., LLC ("CMG"),⁷ an unaffiliated third party, submitted a mini-tender offer⁸ to Inland Western's stockholders, offering $1.50 per share. Jeffers, R. 21 ¶ 65. Inland Western recommended that its

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stockholders reject the offer because it was "substantially below [its] December 31, 2009 estimated value of $6.85 per share." Id. ¶¶ 66-67. Inland Western confirmed its $6.85 "estimated value" for the shares in its Form 8-K filing with the SEC approximately one month later on January 15, 2010, though it noted that the "estimated value may not reflect the actual market value of [the] shares on any given date." Id. ¶ 67; Sadler, R. 1 ¶ 33.

Inland Western issued an SEC Form DEF 14A proxy statement⁹ on December 8, 2010, informing shareholders of a special meeting being held on February 24, 2011, and asking them to "approve an amendment and restatement of the Company's charter in conjunction with the initial listing of the Company's common stock." Sadler, R. 1 ¶ 41. In an effort to create liquidity for the stock, Inland Western stated that it intended to pursue an "initial listing of [its] existing stock within the next 12 months" and that "an exchange listing [would] better prepare the Company for future growth." Id. ¶ 42. The Plaintiffs allege that Inland Western was struggling with its outstanding debt and facing pressure from its creditors and, thus, "looked to the listing as a means to avoid default and multiple foreclosures." Id. ¶ 43.

The proxy statement also described what it called the "phased-in liquidity program" and a "Class B stock dividend grant" in which each share existing prior to

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the 2012 Offering would be split into four shares. Id. ¶ 44. The Proxy Statement included the following information:

Q. How many shares of stock will I own after the implementation of the phased-in

...