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Kurlander v. Kaplan

United States District Court, M.D. Florida, Tampa Division

August 21, 2019

PHILIP KURLANDER, M.D. BAKER HILL HOLDING, a New York limited liability company, EDWIN M. STANTON, and STANTON HOLDINGS, LLC, Plaintiffs,
v.
ROBERT R KAPLAN, ROBERT R. KAPLAN, JR., and KAPLAN VOEKLER CUNNINGHAM & FRANK, PLC, Defendants.

          ORDER GRANTING DEFENDANTS' MOTIONS TO DISMISS

          WILLIAM F. JUNG UNITED STATES DISTRICT JUDGE

         This matter comes to the Court on Defendants' Motions to Dismiss Plaintiffs' Complaint from Robert R. Kaplan and Robert R. Kaplan, Jr. (collectively “the Kaplans”), and Kaplan Voekler Cunningham & Frank PLC (the “Kaplan Firm”). Dkts. 19 & 23. Plaintiffs have filed oppositions in response, Dkts. 31 & 33, to which Defendants have replied, Dkts. 36 & 38. The Court took extensive argument from counsel at a hearing on these matters on August 7, 2019. The Court grants Defendants' Motions to Dismiss without prejudice.

         BACKGROUND

         The facts alleged here in large part mirror the allegations in a related case, No. 8:19-cv-00644-T-02CPT. As there, for purposes of this motion the Court accepts the factual allegations in the Complaint as true.

         Mr. Stanton is an experienced real estate professional in the business of acquiring properties for the purposes of government leases. Dkt. 1 ¶¶ 13-15. In 2006, Mr. Stanton began using the legal services of his friend Mr. Kaplan Jr. and Mr. Kaplan Jr.'s law firm, a predecessor entity to the Kaplan Firm, for his real estate investment business. Dkt. 1 ¶ 17. From this point forward Mr. Kaplan Jr. and his father-and partner at the Kaplan Firm-were Mr. Stanton's “go-to attorneys.” Dkt. 1 ¶ 19. At some point during this relationship, the Kaplans and Mr. Stanton entered into a fee arrangement where the Kaplans would receive an equal share of the profits for transactions and ventures that they provided legal services for. Id. This included Mr. Stanton's new investment vehicle, EMS-CHI, LLC. Id. According to the Complaint, This relationship was not memorized in writing nor was Mr. Stanton encouraged to seek outside counsel's opinion regarding this arrangement. Id.

         In 2012, Mr. Stanton was in the process of acquiring a number of properties but was in need of additional capital. Dkt. 1 ¶ 20. The Kaplans, in addition to providing the legal services related to this acquisition, introduced Mr. Stanton to another client of theirs, Dr. Kurlander. Id. Dr. Kurlander, a medical doctor, was able to provide the capital necessary to fund this project. Id.

         At this point Dr. Kurlander, Mr. Stanton, and the Kaplans decided to formalize this arrangement-Dr. Kurlander providing financing, Mr. Stanton providing real estate know-how, and the Kaplans providing legal services. Dkt. 1 ¶ 21. Mr. Stanton's investment vehicle EMC-CHI was changed to Holmwood Capital LLC and the four men were made equity partners in the arrangement by an agreement drafted by Mr. Kaplan. Dkt. 1 ¶ 20. The Complaint alleges that the Kaplans never encouraged Mr. Stanton or Dr. Kurlander to pursue outside counsel regarding this arrangement. Dkt. 1 ¶ 22. As the years went on this arrangement sprouted a number of related ventures-all with the goal to acquire property and with the Kaplans providing legal services. Dkt. 1 ¶ 23.

         Sometime in 2014 the Kaplans began to push Mr. Stanton and Dr. Kurlander to form a real estate investment trust. Dkt. 1 ¶ 24. Mr. Stanton and Dr. Kurlander acquiesced to an arrangement where the management of the forthcoming real estate investment trust was separated out into an entity called Holmwood Capital Advisors, LLC (“HCA”). Dkt. 1 ¶ 25. HCA was created as a limited liability company, with each of the partners maintaining an equal share of the company. Id. The Complaint alleges the Kaplans drafted all corporate documents: including the operating agreement for HCA. Id. Then, instead of advising the Plaintiffs to seek independent counsel, the Kaplans advised the Plaintiffs that the documents were standard and were the way the Kaplans had been drafting similar documents for over twenty-five years. Id. The Plaintiffs claim they agreed to these documents at the behest of their counsel, the Kaplans. This venture successfully continued with Dr. Kurlander providing financing, Mr. Stanton acquiring properties, and the Kaplans providing legal services into 2015. Dkt. 1 ¶ 26. Plaintiffs state by the end of its first year in existence HCA had a real estate portfolio worth upward of thirty-million dollars. Dkt. 1 ¶ 26.

         The Kaplans then began to push the Plaintiffs toward a new organizational structure. Dkt. 1 ¶ 27. They advised that a new entity should be formed for purposes of taking advantage of Regulation “A” to raise capital. Id. The Kaplans pitched this organizational structure as being key to raising capital without becoming a publicly traded company. Id. The Kaplans portrayed this legal and strategic advice as being particularly valuable because, in addition to being securities experts, the Kaplans “played a significant role in the enactment of certain legislation involving Regulation ‘A'.” Id.

         As set forth in the Complaint, the Plaintiffs and the Kaplans, at the urging of and with the legal advice of the Kaplans, then formed two new entities: HC Government Realty Trust, Inc. (“HC REIT”) and HC Government Realty Holdings, L.P. (“HC Holdings”). Dkt. 1 ¶ 28. As arranged by the Kaplans, HC REIT was a general partner of the operating partnership, HC Holdings, with its limited partners Holmwood Portfolio Holdings LLC (“Holmwood Portfolio”) and Holmwood Capital. Id. HC REIT was and continues to be managed by HCA pursuant to a management agreement drafted by the Defendants. Dkt. 1 ¶ 29. As alleged, the Kaplans then advised the Plaintiffs that it was imperative that HC REIT have a board of directors that was composed mostly of independent directors. Dkt. 1 ¶ 31. The Kaplans expressed that the board would be helpful in raising capital and would not interfere with the level of control possessed by the Plaintiffs because the board would be “independent” in name only and would be bound to the pre-existing management agreement between HC REIT and HCA. Id.

         The Plaintiffs agreed to this new arrangement and Dr. Kurlander, Mr. Kaplan, and Mr. Stanton served as directors of HC REIT with four independent directors who were all selected by the Kaplans. Dkt. 1 ¶ 32. In addition to the new board, Mr. Stanton was elected to serve as the chief executive officer, Mr. Kaplan Jr. appointed himself to serve as the president, Mr. Kaplan was elected to serve as secretary, and Dr. Kurlander was elected to serve as treasurer. Id. The Complaint alleges for all of the legal advice necessary for these changes to the corporate structure of the ventures, the Defendants received more than $500, 000 in attorneys' fees from the Plaintiffs. Dkt. 1 ¶ 35.

         After efforts to procure new capital through this structure began to fail, the Kaplans began counseling the Plaintiffs that securing an institutional investor was the only viable option moving forward-seemingly the opposite of their legal advice less than a year earlier. Dkt. 1 ¶ 38-39. To avoid this the Plaintiffs suggested that they could invest additional capital into HCA in exchange for additional equity. Dkt. 1 ¶ 39. At this point the Kaplans explained that this would be impossible because the organizational documents that they drafted and then advised the Plaintiffs to sign contained an anti-dilution provision that they had not pointed out to the Plaintiffs. Id. This provision protected the Kaplans' interest in HCA from being diminished. Id.

         The Plaintiffs allege they were upset at this revelation and then refused to go along with any further business changes proposed by the Kaplans. Dkt. 1 ¶ 39-40. Without help or permission from the Plaintiffs, the Kaplans began to seek an institutional investor for HC REIT and eventually found an investment group principled by Steve Hale (collectively, the "Hale Partnership"). Dkt. 1 ¶ 40. Over the course of several months the Kaplans negotiated with the Hale Partnership concerning a large investment-against the wishes of the Plaintiffs. Id. These negotiations resulted in the “Hale Package.” Id. The Kaplans, at the objection of the Plaintiffs, put down a “good faith” deposit of their personal funds in order to secure the Hale Package and the Hale Partnership's interest in assuming control over HC REIT. Id.

         In an effort to avoid losing control of these business ventures, the Plaintiffs put together a competing capital package (the “Baker Hill Package”). Dkt. 1 ¶ 42. The board met to discuss these two competing packages and was deadlocked. Dkt. 1 ¶ 44. The Plaintiffs then approached the Hale Partnership for separate negotiations about a buy-out for the Plaintiffs. Dkt. 1 ¶ 45. The Hale Partnership agreed to redeem the equity interest of the Plaintiffs as part of moving forward with the Hale Package. Id. In January 2019, the HC REIT Board approved the terms of this new package, subject to a fairness opinion by an independent investment bank to support the proposed redemption price for the Plaintiffs. Id. The independent investment bank review eventually determined that the proposed redemption price was significantly higher than a fair price. Dkt. 1 ¶ 47. This determination was made orally to the independent directors of HC REIT and was only relayed orally by Mr. Kaplan Jr. to the Plaintiffs. Id.

         On March 11, 2019, an independent director forwarded to the HC REIT Board a memorandum prepared by Elizabeth Watson, the former CFO of HC REIT. According to the Complaint, the Watson memorandum describes in detail why the Hale Package is not favorable for HC REIT, for common stock shareholders, or for any other constituencies. Dkt. 1 ¶ 51. The next day at 10:43 a.m. Mr. Kaplan, on behalf of the HC REIT Board, provided a notice of a meeting of the HC REIT Board set for 11:15 a.m. the following day. Dkt. 1 ¶ 52. This notice was thirty-two minutes more than the minimum required notice under the organization documents. Id. According to the meeting agenda-provided to the Plaintiffs later in the day on March 12th-the board would be voting on the Hale package without any buy-out provisions for the Plaintiffs. Dkt. 1 ¶ 53.

         The next morning, Mr. Kaplan convened the board meeting, at which Mr. Stanton and all the independent directors appeared. Dkt. 1 ¶ 56. Dr. Kurlander was in surgery and unable to attend; this conflict was relayed to Mr. Kaplan the night before. Id. At the meeting Mr. Stanton objected to the short-notice and asked for a continuance in order to allow Dr. Kurlander to attend. Dkt. 1 ¶ 57. This was ignored. Dkt. 1 ¶ 57-58. The board then voted to adopt the Hale Package with Mr. Stanton as the sole dissent. Dkt. 1 ¶ 58.

         The Hale Package was then implemented. Dkt. 1 ¶ 58. As a result, the HCA management contract was being terminated, Mr. Stanton and Dr. Kurlander were removed from their executive positions with HC REIT, and the Plaintiffs' equity was significantly diluted. Dkt. 1 ¶ 59-61.

         Now, alleging as fact the history recited above, Plaintiffs bring ten causes of action: (1) breach of fiduciary duty; (2) fraud in the inducement; (3) civil conspiracy to defraud; (4) negligent representation; (5) professional malpractice; (6) fraudulent omission; (7) constructive fraud; (8) violations of Florida's Deceptive and Unfair Trade Practices Act; (9) Civil RICO; and (10) Civil RICO conspiracy.

         LEGAL STANDARD

         To survive a Rule 12(b)(6) motion to dismiss, a plaintiff must plead sufficient facts to state a claim that is “plausible on its face.” Ashcroft v. Iqbal,556 U.S. 662, 678 (2009) (citation omitted). When considering a Rule 12(b)(6) motion, the court accepts all factual allegations of the complaint as true and construes them in the light most favorable to the plaintiff. Pielage v. McConnell, 516 F.3d 1282, 1284 (11th Cir. 2008) (citation omitted). Courts should limit their ‚Äúconsideration to the well-pleaded factual allegations, documents central to or ...


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