Opinion ID: 779915
Heading Depth: 3
Heading Rank: 6

Heading: Statements of Counsel at the Bankruptcy Hearing

Text: 77 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 ¶ 90. Furthermore, counsel for RGI stated that some time ago there had been some consideration of doing a transaction with G.E.... Id. at ¶ 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. at ¶ 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. 78 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 negotiations relating to the sale definitively commenced during a time when the Investor Group would have been obligated to disclose such negotiations. 79 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. 80 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. 81