Opinion ID: 761526
Heading Depth: 2
Heading Rank: 1

Heading: The Consensus Report

Text: 26 Both complaints allege that the Solicitation misleadingly relied on the Consensus Report, leaving the impression that the Consensus Report's recommendations took the New Lessee's default into consideration. In fact, Koppel and Greenberg assert, the consulting firms had prepared the Consensus Report without the knowledge that the New Lessee had defaulted; as a result, the Consensus Report had little relevance to a determination of the proper allocation of sale proceeds. As explained below, although we express no opinion on the ultimate outcome on the issue, these allegations do make out a valid claim for a violation of § 14(a) and Rule 14a-9 and suffice to survive a motion to dismiss. 27 As a threshold matter, we must sketch the boundaries of the information that we may consider in deciding whether the Solicitation is misleading. Specifically, the District Court had requested the Consensus Report itself from the Defendants-Appellees, and had considered it in reaching its decision. See Koppel, [1998 Transfer Binder] Fed. Sec. L. Rep. at 90,222-23, 1997 WL 760512, at  4. We hold that because the Consensus Report was not part of the total mix of information available to investors, it was improper for the District Court to have considered the report's contents in making its determination on the motion to dismiss. 28 A plaintiff asserting a claim for a material omission under Rule 14a-9 must show that there was 'a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the total mix of information made available.'  United Paperworkers Int'l Union, 985 F.2d at 1198 (quoting TSC Indus., 426 U.S. at 449, 96 S.Ct. 2126). The total mix includes only information reasonably available to the shareholders. Id. (quoting Rodman v. Grant Found., 608 F.2d 64, 70 (2d Cir.1979)). In this respect, [c]orporate documents that have not been distributed to the shareholders entitled to vote on the proposal should rarely be considered part of the total mix of information reasonably available to those shareholders. Id. at 1199. 29 This case does not present us with an instance to look beyond the Solicitation to consider the Consensus Report as part of the total mix of information available to the Participants. The Solicitation did note that [t]he Consensus Report is available for inspection and copying at the offices of [WMB] (on behalf of Associates) ... during regular business hours by any Participant or his [or her] representative who has been so designated in writing (emphasis added). This limited opportunity to review the report at one location, however, does not alone constitute ready availability for most Participants. The difficulty of obtaining the Consensus Report--particularly for those Participants who do not live in New York City, where WMB is located--speaks strongly against consideration of its contents in determining whether the Solicitation itself was materially false or misleading. Moreover, the Solicitation clearly explained that [t]here is no document not included herewith which is incorporated by reference. This statement and the difficulty of reviewing the Consensus Report together dictate that we not consider the report as part of the total mix available to investors. 30 Such a result comports with the policy behind the total mix approach. Specifically, we explained in Seibert v. Sperry Rand Corp., 586 F.2d 949 (2d Cir.1978), that the purpose of looking at the sum of all information reasonably available is to enable a registrant to rely on a  'reasonable belief that the other party already has access to the facts [to] excuse him from new disclosures which reasonably appear to be repetitive.'  Id. at 952 (quoting Frigitemp Corp. v. Financial Dynamics Fund, Inc., 524 F.2d 275, 282 (2d Cir.1975)). Because it is extremely unlikely that any of the Participants had already had access to the Consensus Report, it is sensible in this case not to consider the report itself in our inquiry. We do note, however, that even if we could permissibly consider the Consensus Report, the conclusion we reach below would not change. 31 Turning to the Solicitation itself, we observe that it relied extensively on the conclusions reached in the Consensus Report in its discussion of how to distribute the sale proceeds. The Solicitation discussed only briefly the methodology behind the preparation of the Consensus Report: 32 The proposed allocation of the sale proceeds between the fee and leasehold interests was based primarily upon (a) assumptions of potential sales prices, (b) the determination of the projected net income required to justify the assumed sales prices, reflecting as well appropriate capitalization rates and capital costs, and (c) the apportioning of the Property's total estimated income between the fee interest and the leasehold in accordance with the Operating Lease. The only special instruction provided to the two consulting firms in seeking their consensus was that they assume that the Property would be sold as a unified whole rather than as separate interests. Their methodology required that they assume a minimum sales price of $20,000,000 for the Property. 33 At no point did the Solicitation provide more explicit guidance on whether the Consensus Report had assumed that the lessee was or was not in default. Other portions of the Solicitation do, however, deal explicitly with the New Lessee's default in the context of Associates' proposal not to terminate the lease. 34 The complaints allege that the most natural reading of the Solicitation would therefore suggest that the Consensus Report was prepared with complete knowledge of the material facts, and that the New Lessee's default was a material fact. That is, Koppel and Greenberg do not suggest that the Solicitation misled them as to the New Lessee's being in default or as to Associates' resulting ability to terminate the lease. Indeed the Solicitation was completely clear on these points. Rather, they argue that the Solicitation implied that the Consensus Report--the independent recommendation upon which the Solicitation relied heavily to support the proposed distribution of sale proceeds--had been prepared with that same knowledge when in fact it had not. Although this reading may not be the only plausible interpretation of the Solicitation, it certainly is a permissible way of interpreting its reference to the Consensus Report. 35 Thus, construing the Solicitation in the light most favorable to Koppel and Greenberg--as we must on a motion to dismiss--their allegation suffices to state a claim under § 14(a) and Rule 14a-9. If a trier of fact agreed with the complaints' plausible interpretation of the Solicitation, Associates' misleading reliance on the Consensus Report could constitute a material misrepresentation or omission. That is, a trier of fact could conclude that reasonable investors would find information about the Consensus Report's assumptions about the New Lessee's default to be important to their decision on how to vote. Cf. Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir.1985) ([A] complaint may not properly be dismissed pursuant to Rule 12(b)(6) ... on the ground that the alleged misstatements or omissions are not material unless they are so obviously unimportant to a reasonable investor that reasonable minds could not differ on the question of their importance.). 36 In this respect, we note the District Court's unfortunate choice of words in its opinion, which might suggest that it did not apply the proper standard for a motion to dismiss under Rule 12(b)(6). Specifically, the District Court's opinion appeared in several instances to require Koppel and Greenberg to prove sufficient facts or to produce evidence to prove their claims. See, e.g., Koppel, [1998 Transfer Binder] Fed. Sec. L. Rep. at 90,223, 1997 WL 760512, at  5 ([P]laintiffs have provided insufficient evidence to show that the Solicitation was materially false or misleading.). A plaintiff, of course, need only allege, not prove, sufficient facts to survive a motion to dismiss. The root of the District Court's error in this case, however, was not the application of the wrong standard, but rather its simply not accepting the potentially misleading nature of the Solicitation's portrayal of the Consensus Report. 37 Again, we do not suggest that the complaints describe the only plausible reading of the Solicitation. For example, even if Koppel and Greenberg were to introduce evidence supporting the facts they allege, a trier of fact may well conclude that the Solicitation does imply that the Consensus Report did not seek to consider the New Lessee's default. In other words, the Solicitation's mentioning that the firms that prepared the Consensus Report received only one special instruction may suggest that Associates told the firms little else about the individual circumstances of the situation. A trier of fact may conclude that the Solicitation presented the Consensus Report as no more than a generic allocation of proceeds between a building owner and an operating lessee with a lease of a certain term. 38 It is not for us, however, to choose among the two or more plausible readings of the Solicitation in reviewing the Defendants-Appellees' motion to dismiss. Instead, because we find Koppel and Greenberg's reading to be among those plausible readings, we must reverse the District Court's dismissal of these claims.