Court Opinion

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Opinions of the United
2002 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

11-8-2002

In Re Rockefeller
Precedential or Non-Precedential: Precedential

Docket No. 01-1755

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Recommended Citation
"In Re Rockefeller " (2002). 2002 Decisions. Paper 715.
http://digitalcommons.law.villanova.edu/thirdcircuit_2002/715

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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 Sachs-
led 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 10b-
5 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 well-
settled 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-by-
item examination of all of the Shareholders’ allegations of
fraud, the Shareholders contend that the District Court
erred in two additional respects.

First, the Shareholders argue that the District Court
ignored the 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, non-
public 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