Source: http://ny.findacase.com/research/wfrmDocViewer.aspx/xq/fac.20180330_0000571.ENY.htm/qx
Timestamp: 2019-04-21 18:46:06+00:00

Document:
GLADE M. KNIGHT, APPLE REIT EIGHT, INC., APPLE SIX ADVISORS, INC., APPLE REIT SEVEN, INC., APPLE EIGHT ADVISORS, INC. and APPLE FUND MANAGEMENT, LLC, APPLE SEVEN ADVISORS, INC., APPLE HOSPITALITY REIT, INC., BRE SELECT HOTELS CORP., GLENN W. BUNTING, KENT W. COLTON, LISA B. KERN, BRUCE MATSON, MICHAEL S. WATERS and ROBERT M. WILEY, Defendants.
MARGO K. BRODIE, United States District Judge.
Plaintiff Marsha Wilchfort commenced the above-captioned putative class action on behalf of herself and all others similarly situated against, inter alia, Defendants Apple Hospitality REIT, Inc., Apple REIT Seven, Inc., Apple REIT Eight, Inc. (collectively “AHR”), and BRE Select Hotels Corp., as successor-in-interest to Apple REIT Six, Inc. (“BRE”), asserting claims under Virginia law for breach of contract and the implied covenant of good faith and fair dealing, and tortious interference with contract. (Compl., Docket Entry No. 1.) Defendants AHR and BRE separately move to dismiss the Complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim upon which relief may be granted. (AHR Mot. to Dismiss (“AHR Mot.”), Docket Entry No. 26; AHR Mem. in Supp. of AHR Mot. (“AHR Mem.”), Docket Entry No. 26-1); BRE Mot. to Dismiss (“BRE Mot.”), Docket Entry No. 28; BRE Mem. in Supp. of BRE Mot. (“BRE Mem.”), Docket Entry No. 28-1.) Defendants also move to dismiss the claims as time-barred. (AHR Mem. 16; BRE Mem. 8) For the reasons explained below, the Court grants in part and denies in part Defendants' motions to dismiss.
The price of units purchased under the plan directly from us by dividend reinvestments will be based on the fair market value of our units as of the reinvestment date as determined in good faith by our board of directors from time to time.
Our units are not publicly traded; consequently, there is no established public trading market for our units on which we could readily rely in determining fair market value. Nevertheless, the board has determined that, for purposes of this plan, at any given time the most recent price at which an unrelated person has purchased our units represents the fair market value of our units. Consequently, unless and until the board decides to use a different method for determining the fair market value of our units, the per unit price for the plan will be determined at all times based on the most recent price at which an unrelated person has purchased our units. Notwithstanding the foregoing, the board of directors may determine a different fair market value and price for our units for purposes of this plan if (1) in the good faith judgment of the board an amount of time has elapsed since our units have been purchased by unrelated persons such that the price paid by such persons would not be indicative of the fair market value of our units or (2) our board determines that there are other factors relevant to such fair market value.
The most recent price paid by an unrelated person for a unit was $11.00 on July 25, 2007. Accordingly, our board of directors has determined that the offering price for units purchased under the plan will initially be $11.00 per unit.
(Compl. ¶ 50; 2006 A-6 Form S-3, available at https://www.sec.gov/Archives/edgar/data/ 1277151/000119312506026519/ds3d.htm; 2007 A-7 Form S-3, available at https://www.sec.gov/ Archives/edgar/data/1329011/000119312507156224/ds3d.htm; 2008 A-8 Form S-3, available at https://www.sec.gov/Archives/edgar/data/1387361/000119312508087581 /ds3d.htm.) Therefore, in exchange for foregoing dividends, shareholders received shares at “fair market value, ” a rate determined by one of two methods: (a) “the most recent price at which an unrelated person had purchased [the] units” (b) or another measure determined in the good faith judgment of the boards of directors. (Compl. ¶ 50; AHR Mem. 4.) Thus, unless the boards chose otherwise, shares were to be priced at the rate purchased by the last non-shareholder. (Compl. ¶ 50.) Throughout the entire alleged “Class Period, ” ranging from July 17, 2007 through February 12, 2014,  (id. ¶¶ 1, 13), all three Apple REITs assessed fair market value at eleven dollars per share, “[t]he most recent price at which an unrelated person ha[d] purchased [the Apple REIT] units” according to Defendants' various public filings, (id. ¶¶ 42, 50).
In reviewing a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a court must construe the complaint liberally, “accepting all factual allegations in the complaint as true and drawing all reasonable inferences in the plaintiff's favor.” Kim v. Kimm, 884 F.3d 98, 103 (2d Cir. 2018) (quoting Chambers v. Time Warner Inc., 282 F.3d 147, 152 (2d Cir. 2002)); see also Tsirelman v. Daines, 794 F.3d 310, 313 (2d Cir. 2015) (quoting Jaghory v. N.Y. State Dep't of Educ., 131 F.3d 326, 329 (2d Cir. 1997)). A complaint must plead “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Matson v. Bd. of Educ., 631 F.3d 57, 63 (2d Cir. 2011) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)); see also Pension Ben. Guar. Corp. ex rel. St. Vincent Catholic Med. Ctrs. Ret. Plan v. Morgan Stanley Inv. Mgmt. Inc., 712 F.3d 705, 717-18 (2d Cir. 2013). Although all allegations contained in the complaint are assumed true, this principle is “inapplicable to legal conclusions” or “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements.” Iqbal, 556 U.S. at 678.
Under Virginia law, “[t]he elements of a breach of contract action are (1) a legally enforceable obligation of a defendant to a plaintiff; (2) the defendant's violation or breach of that obligation; and (3) injury or damage to the plaintiff caused by the breach of obligation.” Ramos v. Wells Fargo Bank, NA, 289 Va. 321, 323 (2015) (citation omitted); CoreTel Virginia, LLC v. Verizon Virginia, LLC, 808 F.3d 978, 982-83 (4th Cir. 2015). The Court discusses each element below.
Plaintiff argues that the Forms S-3 provide enforceable obligations on which their contract claims are based. (See generally Compl.) Defendants do not argue that the Forms S-3 cannot form the basis of an enforceable obligation or contract. Indeed, Defendants do not dispute the holding in Moses v. Apple Hospitality REIT Inc., No. 14-CV-3131, 2016 WL 8711089, at *6 (E.D.N.Y. Sept. 30, 2016), finding certain enforceable obligations in the Forms S3. Both Defendants acknowledge that at the very least, there was an enforceable obligation to price units at “the most recent price at which an unrelated person purchased [the] units.” Id.; (AHR Mem. 10; BRE Mem. 6-7.) Defendants instead argue that Plaintiff is relying on theories or arguments not recognized by the Moses court. Thus, the Court understands the dispute to be not whether the Forms S-3 give rise to any enforceable obligations but the scope and substance of those obligations.
“A material breach is a failure to do something that is so fundamental to the contract that the failure to perform that obligation defeats an essential purpose of the contract.” Virginia Elec. & Power Co. v. Bransen Energy, Inc., 850 F.3d 645, 655 (4th Cir. 2017) (quoting Horton v. Horton, 254 Va. 111, 115 (1997).
Plaintiff has sufficiently alleged a breach only as to A-7 and A-8 based on Defendants' failure to reprice DRIP units following purchases by unrelated persons. This theory of breach has already been addressed in Moses, 2016 WL 8711089, at *6. In Moses, the plaintiffs asserted the same breach of contract claims, as here, against A-7 and A-8. Id. As the Moses court explained, absent a contrary determination by the board of directors, the Forms S-3 expressly state that the fair market value is set at “the most recent price at which an unrelated person has purchased [the] units.” Id.; (Compl. ¶ 50.) Further, the Forms S-3 explain that eleven dollars per share is the last price at which an unrelated person purchased the shares. Moses, 2016 WL 8711089, at *6; (Compl. ¶ 50.) In light of this language in the Forms S-3, the Moses court determined that the plaintiffs had sufficiently alleged a breach of contract based on the allegation that the defendant continued to value the units at eleven dollars per share despite sales to unrelated parties at lower prices. Id. at *6. Here, Plaintiff likewise alleges that Defendants failed to reprice A-7 and A-8 shares despite successful cash tender offers to unrelated parties at prices below eleven dollars per share. (Id. ¶¶ 66-69.) However, Plaintiff fails to allege in the Complaint any similar sales to unrelated parties of A-6 shares. Accordingly, Plaintiff has sufficiently alleged a breach of contract under this theory as to A-7 and A-8 but not A-6.
The Court disagrees with AHR Defendants' construction of Plaintiff's claims as to this theory of breach. Although the Complaint is not entirely clear, the section on breach of contract does incorporate earlier allegations that encompass the theories of breach as clarified in the opposition submission. For example, the Complaint states that “[a]s part of the contract, A-6, A-7, and A-8 agreed to value the units at ‘fair market value' deemed to be the last arms-length transaction in the units and further agreed to re-evaluate the worth of the units in good faith and adjust same to be equal to fair market value.” (Compl. ¶ 2 (emphasis added).) The Complaint also separately notes the failure of A-7 and A-8 to reprice the shares after the tender offers. (Id. ¶¶ 66-69.) Moreover, even the allegation in paragraph eighty-three of the Complaint, on which AHR Defendants rely, can be read to support either theory of liability. The allegation explains that Defendants breached their contracts “by failing to change the price of units . . . when the arbitrary [eleven dollars] per unit price was no longer indicative of the actual fair market value of the units, as required by the contracts.” (Id. ¶ 83 (emphasis added).) Even under this theory of breach, eleven dollars per unit could be considered “arbitrary” and “no longer indicative of actual fair market value” because of a failure to reprice “as required by the contracts” following the tender offers. Read as a whole, the Complaint sufficiently states a claim for breach of contract based on a failure to reprice the shares after the tender offers to unrelated persons.
Plaintiff's second theory of breach as to all Defendants is without merit. Under this theory, Plaintiff asserts that Defendants were expressly required to revalue the shares in good faith from “time to time.” (Pl. Opp'n 10.) This argument has already been raised and rejected in Wenzel v. Knight, No. 14-CV-432, 2015 WL 3466863, at *4 (E.D. Va. June 1, 2015), addressing claims against A-7 and A-8. Raising the same breach of contract claims, as in this action, the plaintiff in Wenzel “argue[d] that the agreement required the defendants to price the DRIP shares according to fair market value and reassess and alter the DRIP share price on a regular basis.” Id. at *7 (emphasis added). The Wenzel court rejected both arguments because, “[r]eading the entire contractual language together, ” they “ignore[d] what the agreement[s] say.” Id.; see also Ward's Equip., Inc. v. New Holland N. Am., Inc., 254 Va. 379, 384 (1997) (“A contract must be construed as written and as a whole with all parts being harmonized whenever possible.”). In dismissing the breach of contract claim, the Wenzel court explained that “[t]he agreement imposed no duty on the board to monitor, evaluate, or appraise the share values.” Wenzel, 2015 WL 3466863, at *7. Instead, the Form S-3 only conferred “discretionary power” to the board, and the board's refusal to exercise that power could not form the basis of a breach of contract claim. Id.
The Court agrees with the reasoning in Wenzel and finds no enforceable obligations to revalue the shares from time to time. See Id. Instead, reading the entire language in the Forms S-3 together, the contracts conferred discretionary power to the boards to reconsider the fair market value of the shares through valuation methods different from the “most recent price at which an unrelated person has purchased [the] units.” See Id.

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