06/28/22 06:36 AM EDT

REITS DAILY BRIEF | 6.28.22 | (INVH) | PLAINTIFF FILES RESPONSE

Rob Simone, CFA

@HedgeyeREITs

Takeaway: Last night plaintiff filed its response to INVH's motion to dismiss

Hedgeye Cartoon of the Day: Gnats

It is 6.28.22, and Active Short MPW is overvalued by approximately ~$15.72/share.

Tickers: INVH

Subsector: Single-Family Rentals (SFR)

Headline: Plaintiff files motion to dismiss, argues for discovery; we think case proceeds

Last night, 6.27.22, the attorneys for Plaintiff-Relator Blackbird Special Project, LLC filed its opposition response to Active / Best Idea Short Invitation Homes' (INVH) motion to dismiss the first amended complaint in the qui tam case related to non-permitting of homes across 18 municipalities in California.
Plaintiff argues the motion must be denied on the following grounds:

First, It is a basic principle on a Rule 12(b)(6) motion that the court must accept the truth of the factual allegations presented in the complaint, and construe all reasonable inferences derived from those factual allegations in favor of the non-moving party (Blackbird).
Second, INVH's motion misapplies the so-called "Public Disclosure Bar" (PDB) of the California Fair Claims Act (CFCA). This defense only applies when a set of specific conditions have been met: (1) the matters must have been revealed by the news media, in a public hearing or a government report, (2) the disclosure must have been available to the public and (3) the disclosure must reveal the same transactions or allegations of fraud alleged in the complaint. In its motion INVH contends that everything on the internet constitutes "news media," including the data retrieved by Blackbird's proprietary algorithms and technology. Many courts have already rejected the concept that "news media" can be applied to the entire internet. Further, permitting data contained on governments' websites serve as references to the allegation of fraud, but standing alone do not disclose the circumstances sufficient to show fraud. Therefore, the motion argues that dismissal is precluded by the PDB.
Third on the specificity argument, INVH ignores the overall specificity of the the allegations as a whole, and the fact that many cases holding a relatively small number of examples in the actual complaint have met Rule 9(b) specificity.
And Fourth, "Assuming the facts alleged are true, as they must be in this Motion (as per the first point above), it is reasonable to infer that INVH's systemic disregard for California permitting law cannot be accidental and must rise to the level of recklessness or intentional conduct, either of which suffices. For these reasons, the Court should reject Defendant's Motion to Dismiss and allow this matter to proceed to discovery."

Our base case assumption is that the case IS NOT dismissed later this summer / early-fall. We think discovery could be particularly damaging for INVH.
A few interesting snips from the filing: