09 -37 44 -cv

In re Ce nte rl ineH

olding Com

pany Sec uri tie

s Lit igati on UNI TED S TATES CO URT O F AP PEALS F O R T H E S E C O N D C IR C U IT S UM M ARY OR DER R ul i ngs by s umm ary o rder do n ot ha ve prece denti al ef f ect . C i t ati on to a s umm ary o rder f i l ed on or aft er Ja nua ry 1 , 2 0 0 7 , i s p e r m itte d a n d is g o v e r n e d b y F e d e r a l R u le o f A p p e lla te P r o c e d u r e 3 2 .1 a n d th is c o u r t’ s L o c a l R u le 32. 1. 1. W he n c i ti ng a s ummar y or de r i n a d ocu men t f i l ed w i t h t hi s c our t , a par t y mus t c i t e ei t he r t he Fede ral A p p en d i x o r a n e l ec tro n i c d a ta b a se (w i th th e n o ta tion “ su m m a ry o rd er ” ). A p a rty citi n g a su m m a ry o rd er m u st se r v e a c o p y o f it o n a n y p a r ty n o t r e p r e se n te d b y c o u n se l. 1 At a stated te rm of the United States Court of Ap p ea l s for the Sec ond Circuit, held at the 2 Daniel Patric k Moy nihan United States Courthouse, 500 Pear l Street, in the City of Ne w York, on 3 the 9 day

of June, two thousand ten. th 4 5 PRES ENT: 6 7 J OHN M. WAL KER, J R., 8 CH ES TERJ . S TRAUB, 9 DEB RA ANN L I VI NGSTON, 10 Circ uit J ud ge s. 11 12 13 I N RE CENTERL I

NE HOL DI

NG COMPANY 14 SECURI TI ES L I TI GATI ON 15 16 J . MI CHAEL

FRI ED, JOS EPH A. BRAD DOCK, NORMAN 17 MI L L MAN and ED WARD FRI EDLANDER, as Tr ustee for 18 the Ed

F ri e dla nd e r T ru st, ind ivi du a lly

and on be ha lf of a ll 19 others similarly

situated (collec tively

known as the “ Centerline 20 Investor Gr oup”), 21 22 Plain tif fs- Ap pe lla nts , 23 24 MARK K. GOL DSTEI N, DEB ORAH DECHTER, PETER 25 FRANK, THO MA S L YON S , an d L OR IW EI NR I B, 26 27 Con so lid ate d P lai nti

ffs , 28 29 v. 09-3744-c v 30 Summary Orde r 31 CENTERL I

NE HOL DI

NG COMPANY, MARC D.The Clerk of the Court is directed to amend the off icial ca ption to reflec t the listi ngof * the par ties as indicated a

bove. 2 1 SCHNI TZ ER, ROBERT L . L EVY, JEFF T. B LAU, and 2 STE PHEN M . RO SS, 3 4 Defendants-A ppellees . * 5 6 7 FOR PL AI

NTI FF S-APPEL LANTS: Edwar d L abaton (L awr ence A. Sucharowand 8 J oseph Sternber g , on the brief ), L abaton 9 Suc ha ro w L L P , Ne w Y or

k, NY , ( She rr ie R. 10 Savett, Ba rbar a A. Podell, and Er ic L echtzin, 11 Be r g e r & M o n ta gu e , P. C. , Ph il a d e lp h ia , PA, 12 on the brief ). 13 14 F O R D E F E N D A

N T S- A PP E L L E E S: Richard A . Ro s e n( D an ie l J. L e f f e ll, on the 15 brief ), Paul, We i ss, Rifkind, W harton & 16 G ar r i s o nLLP , N e wY o r

k , N Y , ( P e t e r

L. 17 Sim m o n s, Frie d, Fr ank, Ha rris, Shriver & 18 J acobson L L P, New Yor k, NY, and Jennifer 19 F. B eltram i, Coz en O’ Connor, New Y ork, 20 NY, on the brief ). 21 22 UPON DUE CONSI DERATI ON, it is here by ORDERED, ADJUDGED AND DECREED 23 that the judg ment of the district cour t is AFF I RMED. 24 Plaintiffs-Appellants, both individually and on beha lf of a group of similarly situated 25 investors, appe al from the January 12 and August 4, 2009 order s of the United States District Court 26 for the Southern District of New Yor k(S ch ei n dlin, J. ), dis mis sin gthe ir se c ur iti e s f

ra ud c la ims 27 broug ht under Sec tion 10( b) of the Secur ities Ex chang e Ac t for fa iling ade quately to plead scie nter, 28 an d

c o n s e qu e n tl y

d is mi s s in gth e ir

c o n tr o l p e r s o nli a

b il it y c la im s un d e r

Se c ti o n2 0 ( a ) o f th e A c t. We 29 assume the pa

rties’ fa miliarity with the underly

ing fac ts, pr ocedur al history , and specific ation of the 30 iss ue s o n a

pp e a l.3

1 This Court reviews a district court’s dism issal of a c omplaint pursuant to Fede ral Rule of 2 Civil Procedur e 12(b) (6) de novo , a c c e pti ng a ll fa c tua l a lle g atio ns a s tr ue and dr awi nga ll r e a so na

ble 3 infere nces in fa

vor of the pla intiff. ECA, Local 134 IBEW J o int Pension Trust

of Chicago v. JP 4 Morgan Chase Co. , 553 F.3d 187, 196 (2d Cir. 2009) . “To survive a motion to dism iss, a complaint 5 must plea d ‘enough fac ts to state a claim to r elief that is plausible on its fac e.’” Ruotolo v. City of 6 Ne w York, 5 1 4 F. 3 d 1 8 4 , 1 8 8 (2 d

C i r. 2 0 0 8 ) ( qu o t i n g Be ll A tl. Cor p. v . Two mb ly , 550 U.S. 544, 570 7 (2 00 7) ); see also ATSI Commc’ns, Inc. v. Shaar Fund , Ltd. , 493 F.3d 87, 98 & n.2 (2d Cir. 2007) 8 (ap p l yi n g Twombly standard to se curities fr aud cla im). 9 A Sec tio n 10( b) c la im re qu ir e s a pla int if f t o “ e sta bli shthat ‘ the de fe nd ant, in c onne c tio n w ith 10 the purc ha se or

sa le of se c ur iti e s, ma de a mate ri a lly fa lse state me nt o r o mitte d a mate ri a l f

a c t, w ith 11 scienter , and that the plaintiff’ s relianc e on the de fenda nt’s action ca

used injury

to the plaintiff.’” 12 Lawrence v. Cohn , 3 2 5 F. 3 d 1 4 1 , 1 4 7 (2 d

C i r. 2 0 0 3 ) ( qu o t i n g Ganino v. C itizens Utils. Co. , 228 F.3d 13 154, 161 (2d Cir. 2000)). For an omission to be considered actionable unde r Section 10(b) and the 14 SEC ’ s im

p le me n ti n gr e gu lati o n , th e d e f e n d an t m u s t b e s u b je c t t o a nun d e r ly in gd u ty to d isclose. 15 See B asic Inc. v . Levinson , 48 5 U. S. 22 4, 23 9 n. 17 (1 98 8) (“ To be a c tio na ble , . . . a state me nt m

us t 16 a lso be mis le a din g . Si le nc e , a bs e nt a duty to d isc los e , is no t mi sle a din gun de r R ule 10 b- 5. ” ); Va c old 17 LLC

v. Cerami , 545 F.3d 114, 121 ( 2d Cir. 2008). Such a duty can arise from the nee d to make prior 18 state me nts no t mis le a din g . 17 C.F .R § 24 0. 10 b- 5( b) ; see also In re Time W arner Inc . Secs. Litig. , 19 9 F.3d 259, 268 ( 2d Cir. 1993). 20 Th e Pr ivate Se c ur iti e s L iti g atio n Re fo rm Ac t ( “ PSL RA ” ) i mpo se s a dd iti on a l r e qu ir e me nts 21 on a sec urities fra ud plaintiff: 22 Any

complaint all eg ing se curities fr aud must satisfy the heig htened plea ding 23 require ments of the PSL RA and Fe d. R. Civ. P. 9( b) by stating w ith particularity

the4

1 circ umstances c onstitut ing f raud. Under the PSL RA, the complaint must specify 2 eac h statement alleg ed to have been misleading , and the rea son or re asons why the 3 statem en t i s misleading , and state w ith particularity fac ts givingrise to a strong 4 inf

e re nc e that th e de fe nd ant a c te d w iththe re qu ir e d s tate of min d. Th e re fo re , whil e 5 we no rm a lly draw reas on a

ble inf e re nc e s in the no n- mov ant’ s f

avo r o n a mot ion to 6 dismiss , the PSL RA establishes a m o re stringe nt rule for infere nces involving 7 scienter b ec au s e the PSL RA require s particular alleg ations g iving r ise to a strong 8 infere nce of scienter . 9 10 ECA , 553 F.3d at 196 (interna l quotation marks, citations, and bracke ts omitted). Scienter c an be 11 established in the conte x t of a Sec tion 10(b) claim “by al l egi n gfac ts to show either (1) that 12 defe ndants had the motive a nd opportunity

to commit fra

ud, or (2) strongcirc umstantial evidence 13 of consc ious misbehavior or re cklessness.” Id. at 198 (c iting Ganino , 228 F.3d at 168-69). 14 “Co n s cious misbehavior or r eckle ssness,” in turn, ca n be esta blished by

showing , inte r a lia , that 15 defe ndants “kne w fa cts or had a cce ss to information sugg estingthat their public statements we re not 16 ac cu ra t e. ” Id. at1 9 9 (qu o t i n g Novak v . Kasaks , 216 F.3d 300, 311 ( 2d Cir. 2000)) (inter nal 17 quotation marks omitted). But c onverse ly , wher e liabil ity is premised upon alleg ed mater ial 18 omissions , if the complaint “doe s not present fa cts indicatinga cle ar duty to disclose” — such a s that 19 arisingfrom the ne ed to cor rec t or update pr ior statements — “plaintiff’ s scienter alleg ations do not 20 provide strong evidenc e of conscious misbehavior or rec klessness.” Kalnit

v. Eichle r , 264 F.3d 131, 21 144 (2d Cir. 2001) (e mphasis omitt ed). 22 On appe al, Plaintiffs focus upon De fenda nts’ alleg ed mater ial omissions , arguing that the 23 Def

endants had a duty

to disclose their plans to transf orm Centerline’ s business model from one 24 foc u s e d

o nth e g e n e r ati o no f

d is tr ib u ta

b le tax- e xe mp t i n c o me to th at o f ana s s e t m an a g e r

f o c used 25 on g rowth. Plaintiffs argue that De fenda nts’ duty to disc lose arose primarily from the ne ed to make 26 v ar i o u s s t at em en t s m ad e t o i n v es tm en tan al y s t s d uri n g th e c l as s p er i o d

n o tm i s l ea d i n g. 27 After

a ca ref ul reviewof the c lass period stateme nts identified by Plaintiffs, we af

firm the5

1 dismiss al of Plaintiffs’ c laims for substantially the re asons identified in the district court’s January 2 12 and August 4, 2009 orders. We note pa rticularly that the ef

fort in Plaintiffs’ amende d complaint 3 to char acte rize many of De fenda

nts’ class per iod statement s as speakingto the company ’s future 4 pla

ns — an d thus a s mi sle a din gin l ig ht o f D e fe nd ants ’ u nd isc los e d p lans fo r C e nte rl ine — f a ils 5 wh e n th e state me nts are re vie we d in the ir e nti re ty and in t he c onte xt of the qu e sti on s f ro m ana ly sts 6 to which they

wer e re sponsive. See CortecIndus., Inc . v. Sum Holding L.P. , 949 F.2d 42, 47 (2d Cir. 7 1991) (notingwell-e stablished rule that a “complaint is dee med to include any written instrument 8 atta c he d to it a s an e xhibi t or any state me nts or

do c ume nts inc or

po ra te d in it b y re fe re nc e ” ). Th e se 9 state me nts we re no t r e nd e re d mi sle a din gby the De fe nd ants ’ o mis sio ns. B e c a us e De fe nd ants 10 there fore had no clea r duty to disc lose their plans, and for the other rea sons ide ntified by the district 11 court, Plaintiffs’ amended c omplaint did not ad eq uately alleg e “c onscious misbehavior or 12 rec klessness,” a

nd otherwise f

ailed suff iciently to alleg e fr audulent scie nter. 13 We h ave c on sid e re d th e Pla int if fs ’ r e ma ini ng argume nts and fi nd the m to b e wi tho ut m e ri t. 14 For

the fore g oing r easons, the district c ourt’s judg ment is AFF I RMED. 15 16 17 FOR THE COURT: 18 Catherine O ’Ha g an Wolfe, Clerk 19 20 21 22