IN RE: ROCKEFELLER CENTER PROPERTIES, INC. SECURITIES LITIGATION,
Nos. 01-1755/1756
UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
Filed November 8, 2002
PRECEDENTIAL
v.
DAVID ROCKEFELLER; GOLDMAN SACHS MORTGAGE CO.; GOLDMAN SACHS GROUP LP; GOLDMAN SACHS & CO.; WHITEHALL STREET REAL ESTATE LIMITED PARTNERSHIP V; WH ADVISORS INC. V; WH ADVISORS LP V; DANIEL M. NEIDICH; PETER D. LINNEMAN; RICHARD M. SCARLATA
Frank Debora; Wilson White; Stanley Lloyd Kaufman, Jr.; Joseph Gross, Appellants No. 01-1755
CHARAL INVESTMENT COMPANY INC., a New Jersey Corporation; C.W. SOMMER & CO., a Texas Partnership, on behalf of themselves and all others similarly situated; ALAN FREED; JERRY CRANCE; HELEN SCOZZANICH; SHELDON P. LANGENDORF; RITA WALFIELD; ROBERT FLASHMAN; RENEE B. FISHER FOUNDATION INC.; FRANK DEBORA; WILSON WHITE; STANLEY LLOYD KAUFMAN, JR.; JOSEPH GROSS
v.
DAVID ROCKEFELLER; GOLDMAN SACHS MORTGAGE CO.; GOLDMAN SACHS GROUP LP; GOLDMAN SACHS & CO.; WHITEHALL STREET REAL ESTATE LIMITED PARTNERSHIP V; WH ADVISORS INC. V; WH ADVISORS LP V; DANIEL M. NEIDICH; PETER D. LINNEMAN; RICHARD M. SCARLATA
On Appeal from the Order of the United States District Court for the District of Delaware (D.C. Civ. No: 96-543 (RRM))
District Court Judge: The Honorable Roderick M. McKelvie
Argued on January 17, 2002
Before: RENDELL, FUENTES, and MAGILL,* Circuit Judges
(Opinion Filed: November 8, 2002)
Michael D. Donovan (argued) Donovan Searles, LLC 1608 Walnut Street Suite 1400 Philadelphia, PA 19103 Attorney for Appellants
Pamela S. Tikellis Chimicles & Tikellis, LLP One Rodney Square P.O. Box 1035 Wilmington, DE 19899 Attorney for Appellants
James R. Malone, Jr. Chimicles & Tikellis, LLP 361 West Lancaster Avenue One Haverford Center Haverford, PA 19041 Attorney for Appellants
Ann Miller Suite 206, The Benjamin Franklin House 834 Chestnut Street Philadelphia, PA 19107 Attorney for Appellants
Max Gitter (argued)
Richard A. Rosen Robert N. Kravitz Paul, Weiss, Rifkind, Wharton & Garrison 1285 Avenue of the Americas New York, New York 10019 Attorneys for Appellees Goldman Sachs Mortgage Co., Goldman Sachs Group LP, Goldman Sachs & Co., Whitehall Street Real Estate Limited Partnership V, WH Advisors, Inc., WH Advisors LP V, and Daniel M. Neidich
Robert K. Payson Potter Anderson & Corroon LLP Hercules Plaza 1313 North Market Street Wilmington, DE 19899 Attorney for Appellees Peter D. Linneman and Richard M. Scarlata
Russell E. Brooks Milbank, Tweed, Hadley & McCloy One Chase Manhattan Plaza New York, New York 10005 Attorney for Appellee David Rockefeller
Richard D. Allen Morris, Nichols, Arsht & Tunnell 1201 North Market Street P.O. Box 1347 Wilmington, DE 19899 Attorney for Appellee David Rockefeller
FUENTES, Circuit Judge:
This appeal marks the second time that we address the underlying dispute between the parties. The controversy relates to the landmark Rockefeller Center in midtown Manhattan and arises out of the proxy solicitation in connection with the acquisition of Rockefeller Center Properties, Inc. (“RCPI“) by a consortium of investors, including David Rockefeller, Whitehall Street Real Estate Limited Partnership V (“Whitehall“) and its affiliates, various divisions of the Goldman Sachs Group, Inc. (“Goldman Sachs“), and three individuals associated with those entities.1 The proxy statement painted a bleak financial picture of Rockefeller Center and included management‘s recommendation to approve the merger. One month after the shareholders of RCPI voted to approve the merger, the new owners of Rockefeller Center, the Investor Group, sold approximately 20% of the property to the National Broadcasting Company and its parent, the General Electric Company (“GE/NBC“), for $440 million.
Plaintiffs, the shareholders of RCPI (the “Shareholders“), contend that the Investor Group fraudulently omitted from the proxy statement and other supporting materials the fact that RCPI had been negotiating the sale with GE/NBC prior to the proxy vote and that RCPI had formed an intent tо consummate the sale during those pre-vote negotiations, thereby running afoul of the federal securities laws. As a result of the allegedly fraudulent omissions, the Shareholders contend that they were deceived into relinquishing their ownership rights and that they could have realized more value from their investments. The Investor Group moved to dismiss the Shareholders’ Second Consolidated Amended Class Action Complaint (“Second Amended Complaint“). The District Court granted the motion and dismissed the Second Amended Complaint. The matter comes before us on the Shareholders’ appeal of the dismissal.
We agree with the District Court insofar as it held that the Shareholders had failed to meet the heightened pleading requirements of securities fraud actions set forth
I.
Although prior decisions have set forth the facts of this case in some detail, the present appeal arises out of the Shareholders’ Second Amended Complaint which contains several new allegations not before the Court in its prior ruling. See, e.g., In re Rockefeller Center Properties, Inc. Securities Litigation, 184 F.3d 280 (3d Cir. 1999); Charal Investment Co., Inc. v. Rockefeller, 131 F. Supp. 2d 593 (D. Del. 2001). Therefore, we review the factual background, accepting the well-pleaded allegations in the Second Amended Complaint as true and considering the documents incorporated by reference therein. See In re Burlington Coat Factory Securities Litigatiоn, 114 F.3d 1410, 1420, 1426 (3d Cir. 1997) (“A motion to dismiss pursuant to
A.
Rockefeller Center (or the “Property“) is comprised of several commercial and retail buildings in a large midtown Manhattan complex. The Shareholders contend that the Rockefeller family exercised ownership and control over the Property through a network of related entities. Second Amended Complaint, at P 28. Prior to 1996, the Rockefeller Group, Inc. (“RGI“) owned the Property through its control over two partnerships, Rockefeller Center Properties and RCP Associates (the “Partnerships“).3 RCPI was a real estate investment trust (“REIT“) created in 1985 for the purpose of funding the Partnerships with a $1.3 billion loan. RCPI obtained the funds for the loan through an initial public offering of 37.5 million shares at a price of $20 per share, resulting in proceeds of $750 million. The remainder of the funds came from two offerings of convertible debentures. RCPI secured its $1.3 billion loan by receiving two mortgages on the Property.
Despite the substantial capitalization in 1985, Rockefeller Center, RCPI, and the Partnerships soon confronted mounting financial difficulties.4 By the Fall of 1994, RCPI realized that it would be unable to honor upcoming debenture payments without additional financing. To avoid default, RCPI turned to Goldman Sachs and Whitehall for
terms of the financing, Goldman Sachs agreed to loan $150 million to RCPI, and Whitehall provided for the issuance of $75 million more in debentures. In return, both Goldman Sachs and Whitehall obtained equity interests in RCPI by partial assignments of the Rockefeller Center mortgage, and Goldman Sachs received a seat on RCPI‘s Board of Directors.6
The Shareholders assert that several aspects of the 1994 financing agreement made it disadvantageous for RCPI. First, the financing included a “cash-sweep” provision requiring RCPI to pay directly to Goldman Sachs any funds falling within the definition of “excess” cash. Id., at P 31. According to the Shareholders, the cash-sweep provision further jeopardized the liquidity of RCPI. Id . Because the cash-sweep provision required “mandatory prepayment from RCPI‘s net cash flow,” the proceeds from any subsequent sale of equity or assets of RCPI would be applied first to pay down the REIT‘s outstanding debt to Goldman Sachs. Id. at P 33.7
In addition, the agreement contained an anti-dilution provision intended to protect Goldman Sachs’ equity interest. The anti-dilution provision meant that any subsequent bidder competing with Goldman Sachs for an
RCPI‘s financial problems did not end with the additional cash infusion of $225 million in late 1994. In particular, the Partnerships continued to experience severе cash flow difficulties. On May 11, 1995, the Partnerships suspended all interest payments due on the mortgage loan to RCPI and filed petitions for relief pursuant to
RCPI‘s exploration of financing alternatives triggered a bidding war that resulted in various types of recapitalization proposals from many different bidders. As this Court noted previously, three groups emerged from the pack of bidders with the most promising proposals. See In re Rockefeller, 184 F.3d at 283. One group was led by Samuel Zell, a real estate investor based in Chicago, and included GE/NBC who, at that time, was a tenant of approximately 20% of the Property (the “Zell Group“). Another group was led by Gotham Partners, L.P., who already held 5.6% of RCPI‘s outstanding shares. Third, the Investor Group entered the mix as a bidder.
In the initial stages of the bidding, the Zell Group arguably established an early lead. On August 16, 1995, RCPI entered into an agreement with the Zell Group evidenced by a letter of intent, which provided an immediate $10 million loan to enable RCPI to meet its upcoming obligations to Goldman Sachs.8 The letter of intent paved the way for a more formal combination agreement between the Zell Group and RCPI on September 11, 1995. The Zell Group proposed a $250 million capital contribution to acquire a 50% equity interest in a new
As the bidding commenced, the Partnerships filed a proposed plan of reorganization with the bankruptcy court on September 12, 1995, in which they agreed to relinquish ownership of Rockefeller Center to RCPI. Second Amended Complaint, at P 45. Thereafter, the bidding for RCPI steadily escalated. The intensity was marked by increasing offers for the purchase of all outstanding shares of RCPI, in conjunction with various debt refinancing plans or rights offerings.9 On October 1, 1995, Goldman Sachs and the Investor Group offered to acquire all of the outstanding shares of RCPI for $7.75 per share in cash. According to the Shareholders, the “offer was fundamentally different from all the prior recapitalization proposals, as the shareholders would no longer have a continuing equity interest in the REIT. In connection with the offer, the Investor Group stated it would capitalize the acquiring entity with equity of 440 million dollars.” Id. at P 50.
Throughout the course of bidding, RCPI‘s Board communicated with prospective bidders as it evaluated incoming proposals. For instance, on September 18, 1995, when asked if it had any plans to sell any or all twelve of the buildings at Rockefeller Center, Goldman Sachs responded that, “NO, [GOLDMAN SACHS] DOES NOT HAVE ANY SUCH PLAN.” Id. at P 46 (emphasis in original).
On October 5, 1995, the Zell Group enhanced its recapitalization proposal by reducing the size of its proposed ownership of the new entity, increasing the rights offering to RCPI‘s shareholders, and agreeing to pay $33 million directly to Goldman Sachs for its consent to the
Finally, on November 7, 1995, RCPI‘s Board of Directors agreed to a cash-out merger with the Investor Group in which all of RCPI‘s outstanding shares would be acquired for a price of $8.00 per share.10 In light of its determination that the Investor Group‘s bid was financially superior to the other offers, RCPI‘s board terminated the combination agreement with the Zell Group. The cash-out merger with the Investor Group was contingent on the approval of RCPI‘s Shareholders, and the agreement provided that in the еvent of rejection by the Shareholders, RCPI could elect to make a $200 million rights offering to its Shareholders at a price not less than $6 per share (the “Rights Offering“).
RCPI filed a preliminary proxy statement with the SEC in December 1995. On February 14, 1996, RCPI filed its final proxy statement and distributed it to the Shareholders along with the company‘s letter and notice of special meeting to vote on the Investor Group‘s proposal. The letter to the Shareholders was signed by co-defendants Linneman, Chairman of RCPI‘s Board, and Scarlata, President and CEO of RCPI.
The Shareholders contend that several aspects of the proxy statement were misleading in varying degrees. First, the board emphasized that it “has unanimously approved the Merger Agreement, has determined that the Merger
Second, the proxy statement painted an unmistakably bleak financial picture for RCPI. In RCPI‘s discussion of the “Background of the Merger,” id. at A00485, the company detailed the late 1980s, early 1990s downturn in the commercial real estate market, the liquidity problems of RCPI, and the bankruptcies of the Partnerships. In the section entitled “Recommendation of the Board,” the proxy statement explicitly set forth the risk of RCPI‘s own bankruptcy in the event that recapitalization was not forthcoming. Id. at A00511. In this regard, it is worth noting that the Board‘s recommendation characterized the Zell Group and Gotham‘s proposals as carrying “substantial risk that the consummation of [the proposals] might not occur or might be significantly delayed as a result of legal challenges brought by the Whitehall Group.” Id. at A00510. The proxy statement also detailed the risks to the Shareholders in the event that they retained an interest in RCPI, “including the dependence on a single asset, the continued significant cash flow deficits expected to be generated by the Property and the highly leveraged condition of RCPI or its successor at least in the years immediately following such transaction.” Id. at A00512.
Third, as to the Rights Offering, in the event that the Shareholders rejected the Investor Group‘s proposal, the proxy statement cautioned the Shareholders against any undue reliance on it. If the Shareholders rejected the Investor Group‘s bid, any alternative including the Rights Offering “might require either the Whitehall Group‘s consent, potentially protracted litigation or the commencement of a Chapter 11 case by RCPI.” Id. at A00473. Furthermore, the company warned that “if RCPI‘s stockholders do not approve the Merger Agreement, RCPI could be subject to substantial uncertainties.” Id.
Fifth, the Shareholders contend that the proxy statement contained misleading estimates of the value of Rockefeller Center. In its opinion letter, PaineWebber noted that it did not conduct an independent appraisal of the Property, relying instead on one performed by Douglas Elliman in 1994. That appraisal valued the Rockefeller Center complex at $1.25 billion. Plaintiffs contend, however, that the proxy statement omitted the appraisal‘s observation that Rockefeller Center would likely be worth more if divided and sold as separate pieces and that analysts had expected the commercial real estate market to rebound in 1995.
Finally, the proxy statement contained several statements describing the relationship between GE/NBC and RCPI. At the time, NBC was leasing approximately 20% of Rockefeller Center to house its offices and broadcast studios. See Rockefeller, 131 F. Supp. 2d at 598. The proxy statement described a transaction in September 1995 in which NBC‘s lease was modified to add a guarantee on the lease by GE, so that RCPI could obtain “lease financing.”11 RCPI
After reviewing the proxy materials, the Shareholders approved the Investor Group‘s bid to acquire RCPI on March 25, 1996. About a month later, on April 23, 1996, the Investor Group formally entered into an agreement with GE/NBC for the sale of that portion of Rockefeller Center already occupied by GE/NBC in return for $440 million. According to the Shareholders, it was not until RCPI‘s April 25, 1996 Amendment to its Schedule 13-D filing with the SEC that it disclosed the sale to GE/NBC.
B.
In their Second Amended Complaint, the Shareholders allege three separate violations of the federal securities law. Count One of the Second Amended Complaint alleges that the Investor Group violated
It shall be unlawful for any person . . . in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors, to solicit . . . any proxy or consent or authorization in respect of any security (other than an exempted security) registered pursuant to
Section 78l of this Act .
Rule 14a-9 accordingly prohibits “solicitation . . . by means
Count Two of the Second Amended Complaint alleges that the Investor Group violated
It shall be unlawful for any person . . . [t]o use or employ, in connection with the purchase or sale of any security . . . any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.
Rule 10b-5(b) clarifies that “[i]t shall be unlawful for any person . . . [t]o make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading . . . .” The Shareholders’ claim under Rule 10b-5 alleges not only misrepresentations and omissions, but also the Investor Group‘s failure to update information that became misleading in light of the alleged negotiations between RCPI and NBC/GE.
Count Three of the Second Amended Complaint alleges that certain individual defendants violated
At the pleading stage, the elements necessary to allege a violation pursuant to each of the three statutes differ in some respects. For instance, we have held that in order to state a violation under Rule 10b-5, plaintiffs must allege
Notwithstanding these differences in the essential elements of the three statutory claims brought by the Shareholders, all three sound in fraud and require, therefore, well-pleaded allegations of fraudulent misrepresentations or omissions as the case may be. See In re Burlington, 114 F.3d at 1417 (“The first step for a Rule 10b-5 plaintiff is to establish that defendant made a materially false or misleading statement or omitted to state a material fact necessary to make a statement not misleading.“); In re Westinghouse, 90 F.3d at 707 (“Plaintiffs’ сlaims under section 10(b) of the Exchange Act and under sections 11 and 12(2) of the Securities Act all require among other things, that plaintiffs allege a material misstatement or omission.“) (emphasis in original).
The linchpin of the Shareholders’ action -- the core theory of fraud at issue in all three of their claims -- is their allegation that members of the Investor Group had
In that regard, the Shareholders identify seven distinct events that they contend properly substantiate their claim that the Investor Group had engaged in sale negotiations with GE/NBC and had, in fact, formed an intent to sell to GE/NBC, 20% of Rockefeller Center:
- Around February 1996, the Shareholders claim
that “Goldman Sachs suggested to GE/NBC that if GE/NBC was willing to pay upwards of 400 million dollars for capital lease treatment, depreciation rights and a purchase option of 93 percent of fair market value in 2022, it should simply buy the space it leased at Rockefeller Center.” Second Amended Complaint, at P 68. The Shаreholders assert that the purported negotiations for the sale of this portion of the Rockefeller Center continued throughout February and March 1996. - On March 24, 1996, the evening before the proxy vote, the Shareholders allege that “Sheridan Sheckner, of Goldman Sachs, spoke with Charlie Schoenherr, of GE Capital, and Lawrence Rutkowsky, of NBC, and stated that an outright purchase of the leased property by GE/NBC would remove at least seven of the eleven open negotiating points between them. The parties agreed to negotiate further, and scheduled a meeting for the following afternoon!” Id. at P 84.
- The Shareholders also contend that a Wall Street Journal article (the “WSJ Article“) published after the sale to GE/NBC supports their claims of fraud. The May 6, 1996 article “reported that over the past two years GE and NBC had been in discussions with every party that had had an opportunity to gain control of the Property, and that they began negotiating with defendants Rockefeller and Goldman Sachs in November 1995. The article quoted Michael Sherlock, an Executive Vice President of NBC, as stating ‘everything you can imagine was at one point, over the past year, under negotiation.’ ” Id. at P 89.
- Similarly, the Shareholders point to a June 6, 1996 New York Daily News article (the “NY Daily News Article“) written by Rich Cotton, another Executive Vice President of NBC, stating that “NBC had explored the transaction since 1995 and that ‘[t]his purchase would give the potential new owners of the center $440 million in new up-front capital.’ ” Id. at P 89.
- The Shareholders also assert that a February 20, 1996 draft letter agreement between the Partnerships and GE/NBC, when read together with the April 23, 1996 sale agreement between the Investor Group and GE/NBC, substantiates the fraudulent omissions and misrepresentations they allege. Id. at PP 71, 87. The February 20, 1996 draft letter was allegedly transmitted by the Partnerships, at the behest of Goldman Sachs, and permitted GE/NBC to assume control of certain systems at Rockefeller Center, including the
heating, ventilation, air conditioning, elevator, and window washing systems. The April 23, 1996 sale agreement, specifically refers to the earlier draft letter, from which the Shareholders deduce that sale negotiations must have taken place before the proxy vote. - The Shareholders also contend that several statements made during bankruptcy proceedings relating to the Partnerships establish that sale negotiations between the Investor Group and GE/NBC had been underway before the proxy vote. At a May 6, 1996 hearing, the Shareholders allege that counsel for the Partnerships stated:
Furthermore, counsel for RGI acknowledged that “some time ago there had been some consideration of doing a transaction with G.E. and there were other strings to that transaction that caused [RGI] and its shareholders to decide not to do the transaction.” Id. at P 91.12“There has been, as has been reported in the press, a significant development that in fact had been the topic of discussions for several weeks and that is the proposed transaction between the REIT designee and NBC that will result in NBC acquiring substantially all of the space that it presently leases in Rockefeller Centеr for a purchase price of some $440 million.” Id. at P 90.
- Finally, the Shareholders contend that in a May 22, 1996 letter to the New York State Department of Law, “the Investor Group represented that the February 8, 1996 ‘plan of reorganization contemplates that RCPA [the Partnerships] shall transfer fee title to certain units (including its reversionary rights) to NBC, and transfer fee title to all remaining units then owned by RCPA to [RCPI] . . . .” Id. at P 96 (emphasis in original).
As noted earlier, this appeal marks the second time that this Court has addressed the Shareholders’ action. In our first encounter, the Shareholders appealed the dismissal of their First Consolidated Amended Class Action Complaint. The District Court had converted the Investor Group‘s motion to dismiss into one for summary judgment and ruled, in separate decisions, on the two claims then before it. Specifically, as to the sale negotiations claim, the District Court found that the Shareholders had failed to offer any proof that defendants knew of the details of the sale to GE/NBC at the time of the proxy statement or the Shareholders vote, or that the information would have been material to a reasonable investor. See In re Rockefeller, 184 F.3d at 285. Furthermore, as to the Shareholders’ claim thаt the Investor Group had omitted information about the existence of “air rights,” the District Court also found those omissions to be immaterial. Id. at 286. At that time, this Court affirmed the grant of summary judgment on the air rights claim, but held that the District Court had improperly converted the motion to dismiss the sale negotiations claim into one for summary judgment. Accordingly, the Court vacated and remanded the case. The Court also noted that the parties had briefed and argued their positions prior to the Court‘s recent decision in In re Advanta Corporation Securities Litigation, 180 F.3d 525 (3d Cir. 1999). Therefore, the Court remanded the case to afford the parties an opportunity to consider the impact of In re Advanta.
On remand, the District Court granted the Shareholders’ motion for leave to file the Second Amended Complaint. See Rockefeller, 131 F. Supp. 2d at 599. The Second Amended Complaint focused on the Shareholders’ allegation pertaining to the sale negotiations, but also added a number of factual allegations and the claim under
The District Court addressed both of the motions before it on March 12, 2001. First, the court held that in considering the Shareholders’ motion for leave to amend, it relied principally on
The District Court then performed a thorough review of the allegations in the Second Amended Complaint. In particular, it addressed each of the seven events offered by the Shareholders as proof that sale negotiations were underway before the proxy vote and that the Investor Group had formed an intent to consummate the sale with GE/NBC during those pre-vote negotiations. The District Court found that none of the allegations in the Second Amended Complaint met the heightened pleading requirements of
II.
A.
The District Court had jurisdiction over this securities fraud action pursuant to
B.
The Shareholders’ claims require us to revisit the relevant standards applicable to motions to dismiss in the context of securities fraud actions brought under the federal
The applicable inquiry under
Nevertheless, we have also held that courts are not required to credit bald assertions or legal conclusions improperly alleged in the complaint. See In re Burlington, 114 F.3d at 1429. Similarly, legal conclusions draped in the guise of factual allegations may not benefit from the presumption of truthfulness. See In re Nice Systems, 135 F. Supp. 2d at 565.
Independent of the standard applicable to
While we have acknowledged the stringency of
In order to state a viable claim pursuant to Rule 10b-5, ”
Thus,
In addition to
specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed.16
In In re Advanta, we reviewed the lеgislative history of the heightened pleading requirements of the Reform Act and noted that:
The purpose of the Act was to restrict abuses in securities class-action litigation, including: (1) the practice of filing lawsuits against issuers of securities in response to any significant change in stock price, regardless of defendants’ culpability; (2) the targeting of “deep pocket” defendants; (3) the abuse of the discovery process to coerce settlements; and (4) manipulation of clients by class action attorneys.
180 F.3d at 531 (citing H.R. Conf. Rep. No. 104-369, at 31 (1995), reprinted in, 1995 U.S.C.C.A.N. 679, 730).17 In light of these concerns, we found that by enacting the current version of the Reform Act, “Congress expressly intended” to “substantially heighten” the existing pleading requirements. Id. at 534 (“[A]doption of a ‘strong inference’ standard will substantially heighten the barriers to pleading scienter, a result Congress expressly intended.“).
III.
A.
With these heightened pleading requirements in mind, the District Court performed a detailed analysis of the Shareholders’ allegations. Specifically, the court outlined each of the seven critical events alleged by the Shareholders in Part II.B, supra, and applied the requirements of
1. The February 1996 Goldman Sachs Statement
The Shareholders claim that sometime in February 1996, an employee of Goldman Sachs “suggested to GE/NBC that if GE/NBC was willing to pay upwards of 400 million
In addition, the allegation lacks the requisite specificity required by both
2. The Statement of Sheridan Sheckner
The Shareholders allege that on March 24, 1996, Sheridan Sheckner of Goldman Sachs spoke with representatives of GE Capital and NBC. In that discussion, Sheckner allegedly mentioned that an outright purchase of the leased property by GE/NBC would resolve seven of the eleven open negotiating points between them. Although the Shareholders are able to identify the speaker and the audience, this event, too, is insufficient to support the Shareholders’ claims.
First, the statement merely reflects Sheckner’s own consideration of a sale. It does not reveal any consideration by the Investor Group of that alternative, or any adoption by the Investor Group of Sheckner’s contemplations. The statement does not in any way substantiate the Shareholders’ belief that the Investor Group had formed an intent to sell a portion of Rockefeller Center to GE/NBC.
Second, the alleged discussion is more revealing as to what was actually being discussed at the time. Because an outright purchase is clearly identified as an alternative, the discussions were focused on something other than a sale -- discussions that had progressed to the point where eleven negotiating points had been identified. The Shareholders themselves concede that the primary focus of the negotiations was a modified lease agreement and that as late as January 1996, GE had no intention of consummating a sale: “The participants discussed a deal between the Investor Group and GE/NBC that was a cross between the bondable lease NBC had discussed with Tishman/Speyer in August and the terms of GE/NBC’s deal as part of the Zell Group. GE/NBC was interested in gaining control of some of the operation systems at its leased premises as well as the right to depreciate its lease payments. . . . GE/NBC expressed no interest in becoming a part owner of the whole center, and had only a minimal appetite for any equity investment in the Investor Group.” Second Amended Complaint, at P 61 (emphasis added).18
3. The WSJ Article
According to the Shareholders, the May 6, 1996 WSJ Article stated that “over the past two years GE and NBC had been in discussions with every party that had had an opportunity to gain control of the Property, and that they began negotiating with defendants Rockefeller and Goldman Sachs in November 1995.” Second Amended Complaint, at P 89. The article also quoted Michael Sherlock, an Executive Vice President of NBC, as saying “everything you can imagine was at one point, over the past yеar under negotiation.” Id.
The Court agrees that the Shareholders “fail to explain how the article tends to show that the Investor Group and GE/NBC were negotiating a sale prior to the shareholder vote.” Rockefeller, 131 F. Supp. 2d at 605. Presumably, the patently imprecise concept of “everything you can imagine” would encompass a sale, but because the negotiations “over the past year” included everything, there is no indication whatsoever when the lease negotiations morphed into negotiations for a sale. The only thing that the WSJ article establishes is that sometime before May 6, 1996, sale negotiations occurred; however, the article, even if accepted as true, does not state with the requisite specificity that sale negotiations commenced prior to the Shareholders’ vote on March 25, 1996.
On June 6, 1996, Rick Cotton of NBC published an article which stated:
In 1995, a seismic event occurred: Rockefeller Center went bankrupt. NBC, in considering ways to provide for its long-term studio and office needs, had discussions with various investors to find a solution that would benefit Rockefeller Center, NBC and New York City. After examining many alternatives, NBC began to consider the possibility of purchasing our current space at Rockefeller Center. . . . This purchase would give the potential new owners of the Center $440 million in new, up-front capital . . . .
Second Amended Complaint, at P 89; App. at 00843.
The NY Daily News Article lacks the requisite particularity in the same way as the WSJ Article. Cotton’s article establishes that at some point after the bankruptcy of the partnerships, NBC considered a number of alternatives for providing for its corporate needs. Only “[a]fter examining many alternatives, NBC began to consider the possibility of purchasing” the space that it had been leasing. Again, exactly when NBC began considering a purchase is unclear. Cotton’s article is just as consistent with the notion that GE/NBC began considering a purchase after the acquisition of RCPI by the Investor Group. And, the Daily News Article says nothing about the Investor Group or its intentions.
5. The February 20, 1996 Draft Letter & The April 23, 1996 Sale Agreement
According to the Shareholders, the agreement evidencing the sale of a portion of Rockefeller Center to GE/NBC itself supports their claims. They assert that the April 23, 1996 sale agreement provided for: “a payment by GE/NBC of $440,000,000 (‘the Purchase Price’), to be paid to the successor owner in the manner contemplated by the reorganization plan.” Second Amended Complaint, at P 87 (emphasis in original). Furthermore, the Shareholders contend that the sale agreement referred to a draft letter of February 20, 1996 in which NBC assumed control over
The District Court held that the term “contemplated” in the sale agreement does not refer to the subject of negotiations between the Investor Group and GE/NBC when the Second Amended Reorganization Plan was filed, but rather to the manner of payment of sale proceeds as set forth in that plan. We agree, and find no plausible interpretation fitting the Shareholders’ description. The phrase “a payment . . . to be paid to the successor owner in the manner contemplated by the reorganization plan” is a clear statement of how the parties to the sale intend to structure the payment, that is, as set forth in or “contemplated by” the reorganization plan. This is nothing more than an assurance given by the parties to the sale that the $440 million payment would be in accordance with the requirements of the prior reorganization plan. That assurance does not support the Shareholders’ view that the sale itself was somehow in contemplation in February 1996, when the Second Amended Reorganization Plan was filed. The absence of any independent indication of a potential sale to GE/NBC in the reorganization plan supports the District Court’s interpretation.
With regard to the incorporation by reference of the February 20, 1996 letter agreement, we agree that it also fails to substantiate the Shareholders’ claims. First, the sequence of events does not logically flow to the conclusion that the Shareholders advocate. The fact that GE/NBC negotiated for some autonomy over physical plant systems in February 1996 does not mean that sale negotiations were underway at that point. In fact, it seems to point to the contrary conclusion, namely that as lessee they desired more control. A subsequent sale simply indicates that the negotiations progressed along a continuum, starting with
6. Statements of Counsel at the Bankruptcy Hearing
The Shareholders point out that at a May 6, 1996 hearing relating to the bankruptcy proceedings of the Partnerships, counsel for the Partnerships stated that there had been “discussions for several weeks,” pertaining to “the proposed transaction between the REIT designee and NBC.” Second Amended Complaint, at P 90. Furthermore, counsel for RGI stated that “some time ago there had been some consideration of doing a transaction with G.E. . . .” Id. at P 91. The Shareholders also contend that the bankruptcy court itself exрressed surprise at the sudden announcement of the sale to GE/NBC and queried whether the “disclosure statement in some way might have been inadequate or inappropriate.” Id. at P 92. From these statements, the Shareholders conclude that the Investor Group must have been negotiating the terms of the sale with GE/NBC before the proxy vote. Furthermore, the Shareholders believe that the revelations made at the bankruptcy hearing support their claim that the Investor Group had, in fact, formed an intent to consummate the sale. Neither of those two conclusions are justified by these statements.
First, the statements regarding the timing of negotiations relating to the sale to GE/NBC are unspecific. “Several weeks” before May 6, 1996 and “some time ago” lack the sort of precision necessary to meet the requirements of
As to the statement of counsel for RGI, the Shareholders attempt to manufacture an inference of fraud by noting that co-defendant David Rockefeller was also a principal of RGI. But as the District Court appropriately noted, RGI is not a defendant in this case, and the precise issue before the bankruptcy court involved the disclosure obligations of the Partnerships vis-a-vis their creditors in the Chapter 11 proceedings, not the duties of the Investor Group with regard to the proxy solicitation. Merely because David Rockefeller was a principal of RGI does not transfer the disclosure obligations of RGI to the Investor Group. The statements simply do not address who was negotiating, when the negotiations took place, and what exactly was on the table in February 1996. The conclusion that the Shareholders reach is supported only by speculations and inferences that are not justified under the set of facts alleged.
This last point also puts the statement of the bankruptcy court into perspective. The Shareholders invoke the phrases “inadequate or inappropriate” and “disclosure statement,” implying that the disclosures in the Investor Group’s proxy statement must also have been insufficient. It bears repeating that the court’s statement was made in the context of the Partnerships’ bankruptcy proceedings. Furthermore, the obligations alluded to by the court pertain to the disclosure obligations of the Partnerships, not the Investor Group, in the bankruptcy proceedings. Again, those obligations are wholly distinct from the Investor Group’s disclosure obligations in the context of its proxy solicitation. In short, the Shareholders have taken these statements out of their proper context. More importantly, the Shareholders’ allegations fail to substantiate any actual ongoing negotiations between GE/NBC and the Investor Group before the proxy vote, an intent on the part of the Investor Group to consummate the sale, or any fraudulent misrepresentation or omission concerning the same.
7. The Letter to the New York State Department of Law
Shortly after the bankruptcy hearing described above, RCPI wrote to the New York State Department of Law on
Again, the Shareholders have taken this statement out of context, resulting in a tortuous misinterpretation. Most importantly, the Shareholders’ interpretation contradicts their discussion of the bankruptcy proceedings above, in which the Shareholders concede that the first time that the issue of the GE/NBC sale arose in the bankruptcy court was at the May 6, 1996 hearing. Therefore, it would have been impossible for the February 8, 1996 plan of reorganization to address the GE/NBC sale because, as far as the bankruptcy court was concerned, there was no such sale until May 6, 1996. And, as the proceedings before the bankruptcy court evidenced, the Partnerships’ plan of reorganization was not a static set of simple steps. The plan was fluid, subject to uncertainties and disputes, and flexible enough to accommodate a sale of a portion of Rockefeller Center consummated after the Shareholders’ vote. Thus, the statement that the “plan of reorganization contemplates” the sale to GE/NBC is completely consistent with the overall intent of the May 22, 1996 letter: to convince the Department of Law that the recently consummated sale to GE/NBC did not contravene the plan of reorganization and, consequently, that the Department of Law should extend its no-action position.
In fаct, the only plausible chronology of events is delineated by the Shareholders’ own allegations: (1) a plan
Having reviewed all of the critical factual events alleged by the Shareholders, we agree with the District Court that the Shareholders have failed to support their claims of fraud with the factual particularity required by
B.
Notwithstanding the District Court’s thorough, item-by-item examination of all of the Shareholders’ allegations of fraud, the Shareholders contend that the District Court erred in two additional respects.
First, the Shareholders argue that the District Court ignored the
Second, the Shareholders assert that the District Court erred in taking a piecemeal approach in analyzing their factual allegations and ignoring the purportedly reasonable inference that it would have reached had it viewed their allegations under the totality of the circumstances. In essence, the Shareholders argue that if all of the critical events they allege are viewed as a whole, in conjunction with other allegedly suspicious coincidences, then the
The Shareholders’ argument lacks merit for several reasons. As we have held before, fraud allegations should be analyzed individually to determine whether each alleged incident of fraud has been pleaded with particularity. See In re Westinghouse, 90 F.3d 696, 712 (3d Cir. 1996); see also In re Nice Systems, 135 F. Supp. 2d 551, 574 (D.N.J. 2001). If, after alleging a number of events purportedly substantiating a claim of fraud, none of those events independently satisfies the pleading requirement of factual particularity, the complaint is subject to dismissal under
The Court finds no sound basis for adopting a totality of the circumstances approach in this case. First, we agree with the District Court’s analysis insofar as each factual event alleged by the Shareholders fails to support a claim
As to the purported symmetry in the amount of the Investor Group’s proposed debt offering and the actual sale price to GE/NBC, we strain to see how it would support the serious allegations of fraud asserted here. To set the purchase price in perfect symmetry with its refinancing obligations, the Investor Group would have to have had perfect, absolute control over such volatile factors as interest rates, market prices, and the skill of GE/NBC’s negotiators. It is doubtful that when GE/NBC’s negotiators discussed the purchase price, they had the financing needs of the Investor Group in mind. In any event, the Shareholders’ attempt to support their claims of fraud with this purported symmetry is precisely the sort of speculative fraud by hindsight that the Reform Act was intended to eliminate. See, e.g., In re Advanta, 180 F.3d at 538 (holding that plaintiffs “may not rest on a bare inference that a defendant ‘must have had’ knowledge of the facts.“).
Our ruling today also disposes of the balance of the Shareholders’ claims of fraud. Because the Shareholders have failed to plead with the requisite particularity the existence of pre-vote negotiations regarding the sale to GE/NBC and of the Investor Group’s intent to consummate that sale, it follows that the Investor Group did not commit fraud when it disclosed what was actually taking place -- the lease finanсing negotiations with GE/NBC. Similarly, because the Shareholders have failed to allege the occurrence of negotiations before the proxy vote, it cannot be said that the Investor Group breached any duty to update its disclosures. The Shareholders’ allegations fail to establish that the Investor Group had any such duty prior to March 25, 1999. See, e.g., In re Burlington, 114 F.3d at 1431-33, 1434 n.19.
IV.
For the reasons set forth above, we affirm the judgment of the District Court.20
A True Copy:
Teste:
Clerk of the United States Court of Appeals for the Third Circuit
Notes
Id. at P 92.The economics are different now we ought to look at this from a different point of view. I need that representation because somebody is going to tell me the disclosure statement was inadequate. This transaction, maybe I am just the naive one, it never occurred to me that‘s what it was you were negotiating. So I am saying to you, I may be the only one that wasn‘t . . .
All I am saying to you is, it potentially gives rise to a question whether the disclosure statement in some way might have been inadequate or inappropriate. What you are saying to me is that it doesn‘t fundamentally from your client‘s point of view change the transaction or the economics of the transaction in some way as to render the disclosure inappropriate, even though it did not disclose the possibility that this transaction would or could occur.