Simon Property Group, Inc. v. Taubman Centers
| Decision Date | 08 May 2003 |
| Docket Number | No. 02-75120.,No. 02-74799.,02-74799.,02-75120. |
| Citation | 261 F.Supp.2d 919 |
| Parties | SIMON PROPERTY GROUP, INC., et al., Plaintiffs, v. TAUBMAN CENTERS, INC., et al., Defendants. and Lionel Z. Glancy, Plaintiff, v. Robert S. Taubman, et al., Defendants. |
| Court | U.S. District Court — Eastern District of Michigan |
Carl H. von Ende, Todd A. Holleman, Miller, Canfield, Detroit, MI, TariqMundiya, Willkie, Farr, New York City, for Plaintiffs.
Bernard W. Nussbaum, Michael W. Schwartz, Stephen R. DiPrima, Wachtell, Lipton, New York City, Eugene Driker, Todd R. Mendel, Erica L. Fitzgerald, Barris, Sott, Detroit, MI, Joseph Aviv, Miro, Miro, Bloomfield Hills, MI, Thomas W. Cranmer, Bruce L. Segal, bsegal@mirolaw.com, Miro, Weiner, Bloomfield Hills, MI, Matthew F. Leitman, Bloomfield Hills, MI, I. W. Winsten, Raymond W. Henney, Honigman, Miller, Detroit, MI, for Defendants.
Charles E. Barbieri, Scott R. Lovernick, Foster, Swift, Lansing, MI, Matthew M. Neumeier, Jenner & Block, Chicago, IL, for Movants.
This matter is before the Court on joint Motions for Preliminary Injunction by the Plaintiffs in Simon Property Group, Inc., et al v. Taubman Centers, Inc., et al, case no. 02-7499, and Lionel Z. Glancy v. Robert S. Taubman, et al, case no. 02-75120. For the reasons set forth below:
1. The Court dismisses the Glancy case without prejudice and dismisses Smith from the Simon case, both for lack of subject matter jurisdiction;
2. The Simon Plaintiffs' claims which are based on breach of fiduciary duty in connection with the 1998 restructuring and issuance of the 1998 Series B stock are dismissed for lack of standing;
3. The Simon Plaintiffs' allegations that Defendants interfered with their right to vote are individual harms which are not subject to the demand requirements of F.R.C.P. 23.1;
4. The balance of Simon's claims allege breaches of fiduciary duty of care and loyalty which are excused from the demand requirements of F.R.C.P. 23.1;
5. The business judgment rule entitles the Taubman Centers, Inc. Board of Directors to the benefit of the presumption that it acted in good faith and in accordance with its fiduciary obligations in rejecting the Simon/Westfield offer in 2003, and the Simon Plaintiffs have failed to rebut the presumption;
6. The Taubman Centers Inc. Board of Directors' action taken on December 20, 2002 to amend the bylaws, which thwarted Simon's attempts to call a special meeting of shareholders to consider the Excess Share Provision, had no compelling justification under the rule announced in Blasius;
7. The Taubman family formed a group for the purpose of exercising voting power to block the Simon takeover. Their shares, in combination with the shares obtained by Defendant Robert Taubman via Voting Agreements, all as announced in the November 14, 2002, Schedule 13D/A filed with the Securities and Exchange Commission, are "control shares" under the Michigan Control Share Acquisitions Act, M.C.L. § 450.1790(2)(b); and
8. The Simon Plaintiffs have satisfied the requirements for injunctive relief. Defendants are enjoined from:
(A) enforcing the December 20, 2002 Special Meeting Amendment; and
(B) voting the 33.6% controlling block of shares referenced in the November 14, 2002 Schedule 13D/A that was filed with the Securities and Exchange Commission. These shares may not be voted unless voting rights are extended to the shares in accordance with the Michigan Control Share Acquisitions Act.
Accordingly, the Court GRANTS the Simon Plaintiffs' motion in part and DNIES it in part; and, the Court DENIES the Glancy motion.
Plaintiffs Simon Property Group, Inc., Simon Property Acquisitions, Inc. ("Simon") and Randall J. Smith1 filed their complaint against Taubman Centers, Inc. (TCI), A. Alfred Taubman, and members of the TCI Board of Directors-Robert S. Taubman, Lisa A. Payne, Graham T. Allison, Peter Karmanos, Jr., William Taubman, Allan J. Bloostein, Jerome A. Chazen and S. Parker Gilbert ("the Board"). Simon and TCI are competitors in the regional shopping center business. Smith is a TCI shareholder.
Simon sought judicial intervention in its takeover effort after the Board rejected its unsolicited offer to purchase all of TCI's outstanding common stock at $18 per share on December 5, 2002. Westfield America ("Westfield")2 joined the Simon offer on January 15, 2003 (the "Simon/Westfield Offer"). Then, the offer was increased to $20.00 per share. The Plaintiffs contend that more than 85% of TCI's common shares were tendered into this offer.3
Likewise, TCI shareholder Lionel Z. Glancy ("Glancy") seeks relief from current and former actions by the Board, including its rejection of the Simon/Westfield offer. Glancy's complaint is on behalf of himself and other TCI shareholders, as well as derivatively on behalf of TCI. Glancy's complaint does not name A. Alfred Taubman as a Defendant.
The SPG Plaintiffs and Glancy assert similar claims. In a five-count complaint, the SPG Plaintiffs allege that: (1) the Taubman family does not have the right to vote Series B Preferred Stock acquired by the family in 1998 (Count I)4; (2) the Taubman family does not have the right to vote shares recently acquired, their Series B Preferred Stock, or exercise irrevocable proxies to vote the shares of others, because it gives the Taubmans a controlling share in TCI without a vote of disinterested shareholders (Count II); (3) the Taubmans are not entitled to vote the Series B Preferred Stock and the new shares in such a way that it would foreclose the Simon/Westfield tender offer and disenfranchise the public shareholders. Further, they allege that the Special Meeting Amendment of December 20, 20025 should be deemed null and void since its passage was a breach of the Board's fiduciary duty (Count III); and (4) various other acts and omissions of Defendants constitute breaches of fiduciary duty (Counts IV and V).
Counts I and II of Glancy's complaint also allege that Series B stock acquired by the Taubman family does not have voting rights. Counts III through V allege that Defendants breached their fiduciary duties to the potential class of plaintiffs in the issuance of Series B stock and in their response to the Simon/Westfield offer. Count VI is a derivative claim for alleged breaches of fiduciary duties owed to TCI.
TCI is a publicly traded real estate investment trust ("REIT").6 TCI conducts its regional shopping center operations through a limited partnership known as the Taubman Realty Group Limited Partnership ("TRG"). TCI is its managing partner.7 When TCI was taken public in 1992, 99% of it was owned by public shareholders, including the General Motors Pension Trusts ("GM"). GM owned approximately 20% of the common stock. TRG partnership interests were allocated as "units." The Taubman family owned 23% of the partnership units, while GM and TCI owned the remaining units.
A 13-member Partnership Committee ("Committee") governed TRG. The Committee had authority over TRG affairs. The Taubman family and Taubman family designees held four seats on the Committee. GM held four seats and TCI held five seats.
TCI was governed by a 10 (later 11) member Board of Directors. Two Board members were affiliated with GM, four were affiliated with the Taubman family and the remaining four members were designated as "independent directors."8 Because management decisions were made at the TRG partnership level, the TCI Board's primary function was to issue dividends to shareholders. Decisions of both the Committee and the Board required a majority vote by disinterested members.9
TCFs Articles of Incorporation, via its "Excess Share Provision," prohibit anyone from acquiring shares in excess of 8.23% of the value of the outstanding capital stock of TCI (except certain persons who may own up to 9.9%). The Articles provide that any transfer of stock that would result in a person owning shares in violation of the excess share provision is void ab initio and the intended transferee will not acquire any rights in the shares. Should the Board or anyone desire to forego this limitation on acquisition, the Board is not at liberty to waive it; rather, the provision can only be amended or eliminated by a two-thirds vote of TCI's shareholders.
Plaintiffs point out that with the structure of governance in place from 1992 to 1998, the Taubman family was in the minority and could not have blocked either a proposed sale or an amendment to the Articles. Changes beginning in 1998 are the crux of the dispute before the Court.
In 1998, GM decided to reduce the size of its investment in TCI/TRG. At the same time, Defendants contend that they were looking to simplify the two-tiered TCI/TRG governance structure, because there was speculation that the structure was the reason that the stock price was low. A special planning committee 10 was formed to draft a restructuring proposal that would make recommendations for governance strategies.
As part of the restructuring, the Board authorized the issuance of a new class of stock called the Series B Preferred Stock ("Series B stock") to limited partners of TRG. The limited partners each received one share of Series B stock for each TRG unit held, at $.001 per share. Defendants say that this stock issuance was designed to reallocate voting rights from the Committee, which was being eliminated, to TCI.11 GM's withdrawal had proportionately increased TCI's operating interest to 63% (from 39%) and TRG's minority partners' interest was increased to 37%. Per Defendants, this increase in TCTs interest would have left TRG's minority partners with no say over the management of TRG assets. The Series B stock issuance remedied this inequity according to Defendants, by giving TRG minority partners a shareholder vote in TCI directly proportional to their ownership interest in TRG's assets, and by enabling them to...
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