2002 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

11-8-2002

In Re Rockefeller

Precedential or Non-Precedential: Precedential

Docket No. 01-1755

Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2002

This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova

University School of Law Digital Repository. It has been accepted for inclusion in 2002 Decisions by an authorized administrator of Villanova

University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.

Recommended Citation

"In Re Rockefeller " (2002). 2002 Decisions. Paper 715.

http://digitalcommons.law.villanova.edu/thirdcircuit_2002/715
PRECEDENTIAL 

 Filed November 8, 2002 

UNITED STATES COURT OF APPEALS 

FOR THE THIRD CIRCUIT 

Nos. 01-1755/1756 

IN RE: ROCKEFELLER CENTER PROPERTIES, INC. 

SECURITIES LITIGATION, 

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 

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 
Charal Investment Company Inc.; C.W. Sommer 

& Co.; Renee B. Fisher Foundation; Helen 

Scozzanich; Jerry Crance; Alan Freed; Sheldon P. 

Langendorf; Rita Walfield; Robert Flashman, 

Appellants No. 01-1756 

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) 

_________________________________________________________________ 

* The Honorable Frank J. Magill, United States Circuit Judge for the 

Eighth Circuit, sitting by designation. 

 2 

 

 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) 
 Cleary Gottlieb Steen & Hamilton 

 One Liberty Plaza 

 New York, New York 10006 

 Attorney 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 

 3 

 

 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 

 4 
 

OPINION OF THE COURT 

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 to 

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 

_________________________________________________________________ 

1. Collectively, the consortium of investors is referred to as the "Investor 

Group." The individual defendants include: Daniel M. Neidich ("Neidich"), 

a former director of RCPI and affiliated with Goldman Sachs and 

Whitehall during the relevant time period; Peter D. Linneman 

("Linneman"), a former Chairman of RCPI’s Board and Consultant to 

Goldman Sachs; and Richard M. Scarlata ("Scarlata"), a former President 

and Chief Executive Officer of RCPI and consultant to the acquiring 

investors. 

 5 

 

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 
in Rule 9(b) of the Federal Rules of Civil Procedure and the 

Private Securities Litigation Reform Act of 1995, 2 15 U.S.C. 

S 78u-4(b)(1) (the "Reform Act"). Accordingly, we affirm the 

judgment of the District Court. 

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 Litigation, 114 F.3d 1410, 

1420, 1426 (3d Cir. 1997) ("A motion to dismiss pursuant 

to Rule 12(b)(6) may be granted only if, accepting all well 

pleaded allegations in the complaint as true, and viewing 

them in the light most favorable to plaintiff, plaintiff is not 

entitled to relief. . . . [A] ‘document integral to or explicitly 

relied upon in the complaint’ may be considered‘without 

converting the motion [to dismiss] into one for summary 

judgment.’ ") (citations omitted). 

_________________________________________________________________ 

2. P.L. No. 104-67, 109 Stat. 737 (1995). 

 6 

 

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 
an additional cash infusion of $225 million.5 Under the 

_________________________________________________________________ 

3. Co-defendant David Rockefeller was simultaneously Chairman of RCPI 

and principal of the Rockefeller Group, Inc. 

4. The parties are at odds over the reasons for RCPI’s financial troubles. 

The Shareholders contend that the problems were self-inflicted, that 

RCPI incurred substantial short-term debt backed by letters of credit in 

order to retire the REIT’s long-term debt from the convertible debentures. 

The scheme allegedly failed because RCPI did not have sufficient means 

to meet the short-term debt obligations. In contrast, the Investor Group 

attributes RCPI’s financial problems not to mismanagement, but rather 

to the well-documented downturn in New York’s commercial real estate 

market in the late 1980s and early 1990s. 

5. Although in prior filings and proceedings the Shareholders included 

Whitehall among the lenders in 1994, the Second Amended Complaint 

attributes all $225 million of the financing to Goldman Sachs alone. 

Compare Plaintiffs’ First Consolidated Amended Class Action Complaint, 

 7 

 

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 

_________________________________________________________________ 

at PP 40-42 and In re Rockefeller, 184 F.3d at 283 with Second Amended 

Complaint, at PP 30-33. Nevertheless, RCPI’s Form 8-K filed with the 

United States Securities and Exchange Commission ("SEC") on 

December 18, 1994, reflects financing from both Goldman Sachs and 

Whitehall, as well as other entities. Because RCPI’s 1994 Form 8-K is 

incorporated in the parties’ joint appendix, we reiterate the Court’s prior 

factual finding relating to the involvement of both Whitehall and 

Goldman Sachs in the 1994 financing. See In re Rockefeller, 184 F.3d at 

283. 
6. Co-defendant Neidich occupied Goldman Sachs’ seat on RCPI’s Board 

of Directors. 

7. The Investor Group points out that limitations on the subsequent sale 

of RCPI’s equity or assets were even more prohibitive than the 

Shareholders allege. It notes that covenants on the debentures provided 

for in the 1994 financing explicitly prohibited RCPI itself from prepaying 

the debt for five years. Therefore, RCPI could not itself sell any assets to 

GE/NBC or anyone else during this restricted period without violating 

this pre-payment restriction. See Appellees’ Brief, at 4. 

 8 

 

outright purchase of RCPI would have to exceed Goldman 

Sachs’ own bid by over $1.00 per share. Id. at P 32. 

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 severe 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 Chapter 11 of the 

Bankruptcy Code. In turn, RCPI came to the realization 

that it would not be able honor its own obligations under 

the debentures without the interest payments from the 

Partnerships, which led it to consider a number of 

recapitalization alternatives. 

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 

_________________________________________________________________ 

8. Although the precise dates of the various proposals submitted by the 

bidders differ in this Court’s prior ruling, see In re Rockefeller, 184 F.3d 

at 283, and in the District Court’s decision, Rockefeller, 131 F. Supp. 2d 

at 596-97, we view the Shareholders’ most recent allegations in the 

Second Amended Complaint as controlling here. 
 9 

 

entity that would purchase the existing assets of RCPI. The 

remaining 50% interest in the entity would be reserved for 

RCPI’s shareholders. The Zell Group plan also contemplated 

refinancing $700 million of RCPI’s outstanding debt. The 

agreement did not preclude RCPI from terminating the 

combination agreement in favor of a superior proposal. 

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 

_________________________________________________________________ 

9. As we noted in In re Rockefeller, a rights offering would have provided 

RCPI’s existing shareholders an opportunity to participate in a new 

offering of shares, possibly at a discount to the market price of the 

newly-issued shares. 184 F.3d at 283 n.4 (citing JAMES D. COX ET AL., 

SECURITIES REGULATION 217 (2d ed. 1997)). 

 10 

 

plan. According to the Shareholders, the RCPI Board never 

responded to this enhanced proposal. Allegedly hamstrung 

by the anti-dilution provisions of the 1994 Goldman Sachsled financing, the Zell Group made one final proposal on 

October 27, 1995: an offer of $1.16 billion, mostly in cash, 

to buy the mortgage loan from RCPI. The Zell Group 

estimated that its final proposal would amount to buying 

out RCPI’s shareholders at a price between $7.49 and 
$9.00 per share, "depending upon the outcome of 

negotiations or litigation with Goldman Sachs relating to 

various terms and conditions of the 1994 Goldman Sachs 

Financing." Id. at P 54. Once again, the Shareholders 

contend that RCPI never responded to the Zell Group’s bid. 

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 event 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 

_________________________________________________________________ 

10. The Investor Group’s $8.00 per share bid represented a premium of 

approximately 50% over the price of RCPI stock before the bidding 

commenced. See In re Rockefeller, 184 F.3d at 283. 

 11 

 

Agreement is fair to and in the best interests of RCPI 

and its stockholders and recommends that you vote 

FOR approval and adoption of the Merger Agreement. " 

App. at A00457 (emphasis in original). RCPI’s assessment 

of fairness and its recommendation of approval were echoed 

in an opinion letter from PaineWebber, Inc. attached to the 

proxy statement. See id. at A00619. 

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. 

 12 

 

Fourth, the Shareholders aver that RCPI misleadingly 

characterized the Investor Group’s post-acquisition plans 

for the new entity: "The Investors currently intend that, 

following the Merger, at least $430 million in new debt 

financing would be raised and that a portion of the 

proceeds thereof would be used to repay the indebtedness 

outstanding under the Floating Rate Notes and the Current 

Coupon Convertible Debentures. . . . The Investors expect 

that Newco will own and operate the Property consistently 

with past practices but may increase expenditures and 

make such other changes as deemed appropriate by the 

Investors." Id. at 00522. Although these statements tend to 

imply that the Investor Group’s post-acquisition plans 

contemplated "new debt financing" in accordance with "past 

practices," the same section of the proxy statement 

expressly hedged that contemplation: "The Investors’ 

financing plans may change in light of changes in market 

conditions and other considerations." 

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 

_________________________________________________________________ 

11. In In re Rockefeller, we noted that"credit lease financing is a form of 

asset securitization in which the right to receive future lease payments 

is sold for the present value of those payments." 184 F.3d at 284 n.6 

(citing RICHARD R. GOLDBERG, "Commercial Real Estate Securitization: 

Capital Markets Financing for Debt and Equity," 2MODERN REAL ESTATE 

TRANSACTIONS 1745 (11th ed.)). 

 13 

 

disclosed this transaction on its January 26, 1996 

Schedule 13E-3 filing with the SEC. In addition, the proxy 

statement revealed that if the proposed acquisition by the 

Investor Group failed, RCPI would entertain the possibility 

of a credit lease financing arrangement with GE. GE’s role 

in the background of events was also mentioned in 

connection with its participation in the Zell Group. 

According to the Shareholders, these statements were 

misleading and incomplete in that they failed to disclose 

alleged negotiations between the REIT and GE/NBC 

relating to the outright purchase of its corporate office 

space from 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 Section 14(a) of the Securities 

Exchange Act, 15 U.S.C. S 78n(a), and Rule 14a-9 

promulgated thereunder, 17 C.F.R. S 240.14a-9. In 

pertinent part, Section 14(a) states: 

 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 
of any proxy statement [or] form of proxy . . . containing 

any statement which, at the time and in the light of the 

 14 

 

circumstances under which it is made, is false or 

misleading with respect to any material fact, or which omits 

to state any material fact necessary in order to make the 

statements therein not false or misleading . . . ." 

Count Two of the Second Amended Complaint alleges 

that the Investor Group violated Section 10(b) of the 

Securities Exchange Act, 15 U.S.C. S 78j(b), and Rule 10b5 promulgated thereunder, 17 C.F.R. S 240.10b-5. Section 

10(b) states: 

 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 Section 20(a) of 

the Securities Exchange Act, 15 U.S.C. S 78t, which 

provides that "[e]very person who . . . controls any person 

liable under any provision of this chapter or of any rule or 

regulation thereunder shall also be liable jointly and 

severally with and to the same extent as such controlled 

person . . . unless the controlling person acted in good faith 

and did not directly or indirectly induce the act or acts 

constituting the violation or cause of action." 

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 

 15 

 

that defendants acted with the requisite state of mind. See 

In re Westinghouse Securities Litigation, 90 F.3d 696, 710 

(3d Cir. 1996); In re Burlington, 114 F.3d at 1417. Scienter 

is not, however, a necessary element in alleging a Section 

14(a) claim. See General Electric Co. by Levit v. Cathcart, 
980 F.2d 927, 932 (3d Cir. 1992); In re NAHC, Inc. 

Securities Litigation, No. 01-4132, 2002 WL 31194316, *11 

(3d Cir. Oct. 3, 2002). Both statutes explicitly require a 

well-pleaded allegation that the purported 

misrepresentations or omissions at issue were material. See 

In re Rockefeller, 184 F.3d at 289-90. As to the 

Shareholders’ claim pursuant to Section 20(a), it is wellsettled that controlling person liability is premised on an 

independent violation of the federal securities laws. See 

Shapiro v. UJB Financial Corp., 964 F.2d 272, 279 (3d Cir. 

1992) (" ‘controlling person’ liability can exist only if 

primary liability has been established as to another 

defendant. . . . Here, the dismissal of the S 10(b) claims 

against UJB made it impossible to hold the individual 

defendants liable under S 20(a)."). As such, derivative 

claims under Section 20(a) depend on "proof of a separate 

underlying violation of the Exchange Act." In re Nice 

Systems, Ltd. Securities Litigation, 135 F. Supp. 2d 551, 

588 (D.N.J. 2001) (citations omitted). 

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’ claims 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 

 16 

 

engaged in negotiations with GE/NBC regarding a sale of 

the space occupied by NBC and that the Investor Group 

had, in fact, formed an intent to sell a portion of Rockefeller 

Center to GE/NBC prior to the Shareholders’ vote. The 

Shareholders allege that these critical omissions from the 

proxy statement were misleading in and of themselves, 

which, in turn, rendered other affirmative representations 

fraudulent. Thus, the Shareholders must, at a minimum, 

present well-pleaded allegations supporting their theory of 

fraud in order to survive a motion to dismiss. 

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: 

 (1) 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 Shareholders 

 assert that the purported negotiations for the sale 

 of this portion of the Rockefeller Center continued 

 throughout February and March 1996. 

 (2) 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. 

 (3) 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 

 17 

 

 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. 

 (4) 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. 

 (5) 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. 

 (6) 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: 

 18 

 

 "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 Center for a 

 purchase price of some $440 million." Id. at P 90. 

 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 

 (7) 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). 

_________________________________________________________________ 

12. In addition, the Shareholders assert that the bankruptcy court’s own 

observations about the disclosure of the sale support their claims. The 

court noted that: 

 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. 

Id. at P 92. 

 19 

 

C. 

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 

that 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 Section 

20(a) of the Securities Exchange Act. Shortly thereafter, the 

Investor Group moved to dismiss the Second Amended 

Complaint. The Shareholders responded by filing a motion 

to strike the Investor Group’s motion contending that the 

District Court had already considered the "futility 

standards" when ruling on their motion to amend the First 

 20 

 

Amended Complaint. Therefore, the Shareholders argued 

that the District Court had implicitly determined that the 

Second Amended Complaint satisfied the heightened 

pleading requirements of Rule 9(b) and the Reform Act. 
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 Rule 15(a) of the Federal Rules of Civil 

Procedure, which counsels that "leave shall be freely given 

when justice so requires." Fed. R. Civ. P. 15(a); Rockefeller, 

131 F. Supp. 2d at 601. Since it had not considered the 

futility standards, the District Court denied the 

Shareholders’ motion to strike.13 

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 Rule 9(b) and the Reform Act, 15 U.S.C. 

S 78u-4(b)(1). Having failed to meet these threshold pleading 

requirements, the District Court granted the Investor 

Group’s motion to dismiss the Second Amended Complaint. 

The Shareholders’ appeal followed. 

II. 

A. 

The District Court had jurisdiction over this securities 

fraud action pursuant to 15 U.S.C. S 78aa. We have 

jurisdiction over the District Court’s final order pursuant to 

28 U.S.C. S 1291. Our review of the District Court’s order 

and its interpretation of the federal securities laws is 

_________________________________________________________________ 

13. The Shareholders have not challenged this aspect of the District 

Court’s decision on appeal. Our review is limited, therefore, to the court’s 

decision on the motion to dismiss. 

 21 

 

plenary. See Oran v. Stafford, 226 F.3d 275, 281 n.2 (3d 

Cir. 2000) ("We exercise plenary review over the District 

Court’s dismissal of the Amended Complaint for failure to 

state a claim, accepting plaintiffs’ factual allegations as 

true. . . . We also have plenary review over the District 

Court’s interpretation of the federal securities laws.").14 In 

reviewing the dismissal of the Shareholders’ Second 

Amended Complaint, we apply the same standards applied 

by the District Court. See Official Committee of Unsecured 

Creditors v. R.F. Lafferty & Co., Inc., 267 F.3d 340, 346 (3d 

Cir. 2001). 

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 
securities laws. As some of our recent decisions have 

illustrated, the analysis requires more than mere reference 

to the conventional standard applicable to motions under 

Rule 12(b)(6). 

The applicable inquiry under Rule 12(b)(6) is well-settled. 

Courts are required to accept all well-pleaded allegations in 

the complaint as true and to draw all reasonable inferences 

in favor of the non-moving party. See Scheuer v. Rhodes, 

416 U.S. 232, 236 (1974), overruled on other grounds, 

Harlow v. Fitzgerald, 457 U.S. 800 (1982); Allegheny 

General Hospital v. Phillip Morris, Inc., 228 F.3d 429, 434- 

35 (3d Cir. 2000). The inquiry is not whether plaintiffs will 

ultimately prevail in a trial on the merits, but whether they 

should be afforded an opportunity to offer evidence in 

_________________________________________________________________ 

14. Although we review the grant of a motion to dismiss, the basis for 

our plenary review is grounded in the standard applicable to motions for 

summary judgment because of the District Court’s consideration of 

documents outside the pleadings. See Smith v. Johns-Manville Corp., 795 

F.2d 301, 306 (3d Cir. 1986) ("Our standard of review over the district 

court’s order is plenary. Although this case involves the denial of the 

government’s motion to dismiss for lack of jurisdiction, the appropriate 

standard is the same as that for a motion of summary judgment because 

the court below considered documents outside the pleadings themselves 

in ruling on the motion."). 

 22 

 

support of their claims. See Scheuer, 416 U.S. at 236. 

Dismissal under Rule 12(b)(6) is not appropriate unless it 

appears beyond doubt that plaintiff can prove no set of 

facts in support of his claim which would entitle him to 

relief. See R.F. Lafferty, 267 F.3d at 346 (citing Conley v. 

Gibson, 355 U.S. 41, 45-46 (1957)). 

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 Rule 12(b)(6) 

motions, Rule 9(b) imposes a heightened pleading 

requirement of factual particularity with respect to 

allegations of fraud. Rule 9(b) states: "In all averments of 

fraud or mistake, the circumstances constituting fraud or 

mistake shall be stated with particularity." Fed. R. Civ. P. 

9(b).15 As we have noted in previous decisions, "[t]his 

particularity requirement has been rigorously applied in 

securities fraud cases." In re Burlington, 114 F.3d at 1417 

(citations omitted). Although Rule 9(b) falls short of 

requiring every material detail of the fraud such as date, 

location, and time, plaintiffs must use "alternative means of 

injecting precision and some measure of substantiation into 

their allegations of fraud." In re Nice Systems, 135 F. Supp. 
2d at 577. The imposition of a heightened pleading 

requirement in fraud actions serves important objectives: 

"Rule 9(b)’s heightened pleading standard gives defendants 

notice of the claims against them, provides an increased 

measure of protection for their reputations, and reduces the 

number of frivolous suits brought solely to extract 

settlements." In re Burlington, 114 F.3d at 1418 (citations 

omitted). 

While we have acknowledged the stringency of Rule 9(b)’s 

pleading requirements, we have also stated that, in 

_________________________________________________________________ 

15. With respect to state of mind, Rule 9(b) also states that "[m]alice, 

intent, knowledge, and other condition of mind of a person may be 

averred generally." 

 23 

 

applying Rule 9(b), courts should be "sensitive" to 

situations in which "sophisticated defrauders" may 

"successfully conceal the details of their fraud." Id. Where 

it can be shown that the requisite factual information is 

peculiarly within the defendant’s knowledge or control, the 

rigid requirements of Rule 9(b) may be relaxed. Id. 

Nevertheless, even when the defendant retains control over 

the flow of information, "boilerplate and conclusory 

allegations will not suffice. Plaintiffs must accompany their 

legal theory with factual allegations that make their 

theoretically viable claim plausible." Id. (emphasis in 

original). 

In order to state a viable claim pursuant to Rule 10b-5, 

"Rule 9(b) requires a plaintiff to plead (1) a specific false 

representation [or omission] of material fact; (2) knowledge 

by the person who made it of its falsity; (3) ignorance of its 

falsity by the person to whom it was made; (4) the intention 

that it should be acted upon; and (5) that the plaintiff acted 

upon it to his damage." Shapiro, 964 F.2d at 284 (citations 

omitted); see also In re Westinghouse, 90 F.3d at 710 

(citations omitted). With regard to the showing of specificity, 

the Court has held that Rule 9(b) requires plaintiffs to 

identify the source of the allegedly fraudulent 

misrepresentation or omission. See Klein v. General 

Nutrition Cos., Inc., 186 F.3d 338, 345 (3d Cir. 1999) ("The 

complaint fails to attribute the statement to any specific 

member of GNC management. Fed. R. Civ. P. 9(b) requires, 

at a minimum, that the plaintiff identify the speaker of 

allegedly fraudulent statements.") (citations omitted). 

Thus, Rule 9(b) requires, at a minimum, that plaintiffs 

support their allegations of securities fraud with all of the 

essential factual background that would accompany"the 

first paragraph of any newspaper story" -- that is, the 

"who, what, when, where and how" of the events at issue. 

In re Burlington, 114 F.3d at 1422 (citing DiLeo v. Ernst & 

Young, 901 F.2d 624, 627 (7th Cir. 1990)). 

In addition to Rule 9(b), plaintiffs alleging securities fraud 
must also comply with the heightened pleading 

requirements of the Reform Act, 15 U.S.C. S 78u-4(b)(1), 

(b)(2). Specifically, S 78u-4(b)(1) of the Reform Act requires 

plaintiffs to 

 24 

 

 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 legislative 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."). 

_________________________________________________________________ 

16. In addition, with regard to any securities fraud claims, such as Rule 

10b-5 claims, the Reform Act requires that "the complaint shall, with 

respect to each act or omission alleged to violate this chapter, state with 

particularity facts giving rise to a strong inference that the defendant 

acted with the required state of mind." 15 U.S.C.S 78u-4(b)(2). 

The District Court’s thorough application of the Reform Act to the 

Shareholders’ claims was confined exclusively to an analysis of the 

particularity requirement in 15 U.S.C. S 78u-4(b)(1) quoted in the text 

above. Because we concur with the District Court’s analysis under 

S 78u-4(b)(1), we similarly limit our review to that pleading requirement. 

17. Although the Court’s review of the legislative history of the Reform 

Act occurred in the context of its discussion of the scienter prong, 15 

U.S.C. S 78u-4(b)(2), the Court’s general findings as to legislative intent 

apply equally to the particularity requirement, 15 U.S.C. S 78u-4(b)(1). 

 25 

 

Procedurally, the importance of the Reform Act to the 

present appeal is that the heightened pleading requirement 
of S 78u-4(b)(1) imposes another layer of factual 

particularity to allegations of securities fraud. The 

particularity described in S 78u-4(b)(1) extends that of Rule 

9(b) and requires plaintiffs to set forth the details of 

allegedly fraudulent statements or omissions, including 

who was involved, where the events took place, when the 

events took place, and why any statements were 

misleading. See S. Rep. No. 104-98, at 15, reprinted in, 

1995 U.S.C.C.A.N. 679, 694 (in response to criticism that 

"courts of appeal have interpreted Rule 9(b) in different 

ways, creating distinctly different pleading standards 

among the circuits," Congress intended to adopt a"uniform 

and stringent pleading requirement."); see also In re 

Advanta, 180 F.3d at 534 ("This language echoes precisely 

Fed. R. Civ. P. 9(b) and therefore requires plaintiffs to plead 

‘the who, what, when, where and how: the first paragraph 

of any newspaper story.’ ") (citations omitted). 

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 Rule 

9(b) and S 78u-4(b)(1). The Shareholders’ principal 

contention on appeal is that the District Court erred in its 

interpretation of these events and in failing to draw all 

reasonable inferences therefrom in its favor. We agree that 

the facts alleged by the Shareholders failed to meet the 

applicable pleading requirements and begin our analysis 

with a review of the critical events alleged by the 

Shareholders. 

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 

 26 

 

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, atP 68. 

At the outset, even if accepted as true, this vague allegation 

falls far short of substantiating sale negotiations between 

the Investor Group and GE/NBC, let alone an intent to 

consummate the sale. The fact that an employee of 

Goldman Sachs "suggested" this alternative does not even 

indicate that negotiations actually commenced. The District 

Court correctly noted that the allegation establishes no 

more than that someone at Goldman Sachs had considered 

a sale as an alternative. It does not establish that GE/NBC 

responded in any meaningful way, that Goldman Sachs 

advised the Investor Group to pursue a sale, or that the 
Investor Group formed an intent to sell a portion of the 

Rockefeller Center. 

In addition, the allegation lacks the requisite specificity 

required by both Rule 9(b) and the Reform Act. In Klein, the 

Court held that Rule 9(b) "requires, at a minimum, that the 

plaintiff identify the speaker of allegedly fraudulent 

statements." 186 F.3d at 345. Although the Shareholders 

argue that the identification of Goldman Sachs employees 

involved in the pertinent deals elsewhere in the Second 

Amended Complaint is sufficiently specific to inform the 

allegation above, that view is inconsistent with Rule 9(b) 

and the Reform Act. Because the allegation fails to identify 

the speaker, there is no indication that the speaker had the 

authority to speak on behalf of Goldman Sachs or that the 

employee was in regular contact with the Investor Group. 

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. 

 27 

 

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 
_________________________________________________________________ 

18. The Shareholders also emphasize alleged discussions between 

GE/NBC and co-defendant Scarlata in September 1995. According to 

them, "[i]n substance, GE/NBC made it clear to Messrs. Scarlata and 

Jarvis shortly before September 10 that GE/NBC would be willing to put 

up about $400 million in cash in connection with a credit lease 

financing, and that it would be willing to put up even more to own the 

property leased by NBC at the end of the lease term." Second Amended 

Complaint, at P 39 (emphasis added). As of 1995, it appears that 

GE/NBC had approximately 27 years remaining on its lease. As is 

evident from the Shareholders’ own characterizations of these 

discussions, the economics of credit lease financing with an option to 

purchase at the end of a 27-year lease period are altogether different 

from those of outright ownership. Thus, in the very next sentence, the 

Shareholders acknowledge that "GE/NBC was not, however, interested in 

 28 

 

Against this backdrop, Sheckner’s statement cannot be 

interpreted as a part of ongoing negotiations to sell a part 

of Rockefeller Center or as evidence of the Investor Group’s 

intent to consummate a sale. Rule 9(b) and the Reform Act 

require the Shareholders to identify specific negotiations 

dedicated to a sale and to come forward with particular 

allegations of the Investor Group’s purported intent to 

consummate a sale. Sheckner’s statement fails to meet 

these requirements. 

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 year 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. 

_________________________________________________________________ 

becoming a part owner of the entire complex. Instead GE/NBC was 
primarily interested in obtaining relief from its‘underwater’ lease and, if 

possible, control of the physical plant systems . . . ." Id. Therefore, these 

discussions cannot form the basis of the Shareholders’ allegations that 

actual sale negotiations were underway as of September 1995. 

 29 

 

4. The NY Daily News Article 

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 

 30 

 

heating, ventilation, air conditioning, elevator, and window 

washing systems of the space it occupied. The Shareholders 

argue that since the Partnerships had filed a Second 
Amended Joint Plan of Reorganization on February 8, 1996 

-- the same plan referred to in the sale agreement above -- 

the Investor Group must have "contemplated" the sale at 

that time. Also, because the sale agreement incorporated by 

reference the February 20, 1996 letter agreement, the sale 

must have been in consideration at that time as well. 

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 

 31 

 

alternative lease options and advancing to arrangements 

contemplating more control in the hands of GE/NBC. Thus, 

the incorporation of the February 20, 1996 letter agreement 

in the April 23, 1996 sale agreement fails to show that the 

Investor Group had engaged in sale negotiations with 

GE/NBC before the date of the proxy vote, March 25, 1996. 

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 expressed 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. atP 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 Rule 

9(b) and the Reform Act. The statements shed no definitive 

light on the issue of exactly when negotiations began or 

when the Investor Group formed the intent to consummate 

the sale. As the District Court noted, "several weeks" before 

May 6, 1996, the date of the bankruptcy hearing, could be 

interpreted to include only the six-week period after the 

Shareholders’ vote -- that is, the six weeks between March 

25, 1996 and May 6, 1996. Therefore, there is nothing in 

either of the statements that even remotely suggests that 

 32 

 

negotiations relating to the sale definitively commenced 

during a time when the Investor Group would have been 

obligated to disclose such negotiations. 

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 

 33 

 

May 22, 1996, primarily for the purpose of requesting that 

a "no-action letter" received in 1988 would remain valid as 

to the upcoming transfer of title to GE/NBC pursuant to 

the sale. The Shareholders highlight one line in the May 22 

letter: "[The Partnerships have] filed for protection under 

the federal bankruptcy code and the proposed plan of 

reorganization contemplates that 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 [the Partnerships] to RCPI." App. at 00990. 

Because the Partnerships filed their Second Amended 

Reorganization Plan on February 8, 1996, and because the 

May 22 letter states that that plan "contemplates" the 

transfer to NBC, the Shareholders conclude that sale 

negotiations must have been underway at least as early as 

February 8, 1996. 

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 fact, the only plausible chronology of events is 

delineated by the Shareholders’ own allegations: (1) a plan 

 34 

 

of reorganization was, in fact, filed with the bankruptcy 

court in February 1996; (2) at some point after the proxy 

vote, the Investor Group and GE/NBC agreed to the sale of 

a portion of Rockefeller Center; (3) this disclosure was made 

to the bankruptcy court on May 6, 1996, at which time the 

bankruptcy court satisfied itself that the sale to GE/NBC 

was consistent with Partnerships’ Second Amended 

Disclosure Statement and Plan of Reorganization; and (4) 

on May 22, 1996, RCPI requested that the New York State 

Department of Law approve the sale by seeking to extend 

the effect of the 1988 no-action letter to the GE/NBC deal. 

The fact that the Shareholders misinterpret statements 

made throughout the course of these events does not 

change the fact that their allegations do not substantiate 

their core claim of fraud -- that the Investor Group had 

engaged in negotiations relating to the GE/NBC sale prior 

to the proxy vote and that the Investor Group had formed 

an intent to consummate that sale during those pre-vote 

negotiations. 

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 Rule 9(b) 

and the Reform Act, 15 U.S.C. S 78u-4(b)(1). 

B. 

Notwithstanding the District Court’s thorough, item-byitem 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 Rule 12(b)(6) standard, requiring courts to draw 

all reasonable inferences in favor of the non-moving party. 

This argument ignores the impact of the Reform Act. In In 

re Advanta, we noted that "[a]lthough the Reform Act 

established a uniform pleading standard, it did not purport 

to alter the substantive contours of scienter. Under the 

heading ‘Requirements for securities fraud actions,’ the Act 

expressly characterizes subsections 21D(b)(1) and (b)(2) [15 

U.S.C. SS 78u-4(b)(1) and (b)(2)] as imposing ‘pleading 

 35 

 

requirements.’ " 180 F.3d at 534 (emphasis added). 

Similarly, in Oran, this Court stated that"[b]oth the PSLRA 

and Federal Rule of Civil Procedure 9(b) impose heightened 

pleading requirements on plaintiffs who allege securities 
fraud." 226 F.3d at 288 (emphasis added). These decisions 

clarify that Rule 9(b) and the Reform Act impose 

independent, threshold pleading requirements that, if not 

met, support dismissal apart from Rule 12(b)(6). 19 Thus, in 

In re Burlington, the Court acknowledged that a complaint 

could pass muster under the traditional Rule 12(b)(6) 

analysis and still fail on Rule 9(b) grounds. 114 F.3d at 

1424 ("We conclude, therefore, that while dismissal on Rule 

12(b)(6) alone would not have been proper, the dismissal on 

Rule 9(b) grounds was."). In addition, the sanction of 

dismissal for failure to satisfy either of the heightened 

pleading requirements of the Reform Act is provided for in 

15 U.S.C. S 78u-4(b)(3)(A). See In re Advanta, 180 F.3d at 

531 ("Failure to meet [the Reform Act’s] requirements will 

result in dismissal of the complaint."). Stated another way, 

unless plaintiffs in securities fraud actions allege facts 

supporting their contentions of fraud with the requisite 

particularity mandated by Rule 9(b) and the Reform Act, 

they may not benefit from inferences flowing from vague or 

unspecific allegations -- inferences that may arguably have 

been justified under a traditional Rule 12(b)(6) analysis. 

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 

_________________________________________________________________ 

19. In Florida State Board of Administration v. Green Tree Financial Corp., 

270 F.3d 645, 660 (8th Cir. 2001), the court directly addressed the issue 

of the effect of the PSLRA on the traditional 12(b)(6) analysis: "The 

Reform Act modifies the ordinary Rule 12(b)(6) dismissal mechanism in 

two limited ways. First, whereas under Rule 12(b)(6), we must assume 

all factual allegations in the complaint are true . . . under the Reform 

Act, we disregard ‘catch-all’ or ‘blanket’ assertions that do not live up to 

the particularity requirements of the statute." (citations omitted). 

 36 

 

reasonable inference is that the Investor Group had 

commenced negotiations for the sale of a portion of 

Rockefeller Center prior to the proxy vote and had formed 

an intent to consummate that sale. According to the 

Shareholders, the suspicious coincidences include the 

suspect timing of the GE/NBC sale just one month after 

the proxy vote and the fact that the purchase price paid by 

GE/NBC, $440 million, correlates almost perfectly with the 

amount of debt financing that the Investor Group intended 

to obtain, as disclosed in the proxy statement, $430 

million. 

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 at 712; see also In re Nice 

Systems, 135 F. Supp. 2d at 574. 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 15 U.S.C. S 78u-4(b)(3)(A). 

While it is true that in other securities fraud contexts, the 

Court has endorsed a variant of the totality of 

circumstances approach, those occasions are reserved for 

cases presenting unusually suspicious circumstances. For 

instance, in the context of insider trading claims, the Court 

has consistently held that it will not infer fraudulent intent 

from the mere fact that some officers sold stock during a 

time when plaintiffs allege they possessed material, nonpublic information. See In re Advanta, 180 F.3d at 540; In 

re Burlington, 114 F.3d at 1424. Nevertheless,"if the stock 

sales were unusual in scope or timing, they may support an 

inference of scienter." In re Advanta, 180 F.3d at 540; see 

also In re Burlington, 114 F.3d at 1424 ("Instead, plaintiffs 

must allege that the trades were made at times and in 

quantities that were suspicious enough to support the 

necessary strong inference of scienter."). 

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 

 37 

 

of fraud with the requisite particularity. In addition, if the 

mere coincidences were as suspicious as the Shareholders 

contend, then a totality of the circumstances approach 

might warrant some consideration. That is not the case 

here, however. As the Investor Group points out, the fact 

that the sale to GE/NBC occurred one month after the 

proxy vote, rather than substantiating fraud, reflects the 

frenetic pace and scope of negotiations that financially 

troubled enterprises often experience. 

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 financing 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. 

 38 

 

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 

_________________________________________________________________ 

20. In light of our decision today, we find it unnecessary to address the 

District Court’s alternative basis for dismissal-- the immateriality of the 

alleged omissions. Similarly, we need not reach the Shareholders’ 

argument that the case should be remanded to another District Judge 

because of the trial judge’s purported bias or because of a wholly 

unsubstantiated intimation of a conflict of interest that was not 

addressed in prior proceedings. See Appellant’s Opening Brief, at 32 

n.12, 59-61. Vacatur and remand are not necessary, and "any alleged 

harm to [the Shareholders] is cured by our plenary review of the district 

court’s decision." Klein, 186 F.3d at 342 (citations omitted). 

 39