Court Opinion

ID: 4375785
Source: CourtListenerOpinion
Date Created: 2019-03-11 19:00:17.424494+00
Date Added: 2024-06-11T12:04:12.510635
License: Public Domain

PUBLISHED

                      UNITED STATES COURT OF APPEALS
                          FOR THE FOURTH CIRCUIT

                                        No. 18-1483

PARADISE WIRE & CABLE DEFINED BENEFIT PENSION PLAN;
HOLLINGSWORTH, MENDENHALL AND MCFADDEN, LLC; IG
HOLDINGS, INCORPORATED; IG REVOCABLE TRUST; DR. STUART
WOLLMAN; SHEILA ROSENBERG; RENE DEMEULE, Individually on behalf
of themselves and all others similarly situated,

             Plaintiffs - Appellants,

v.

EDWARD M. WEIL, JR.; AMERICAN REALTY CAPITAL RETAIL
ADVISOR, LLC; DAVID GONG; LISA D. KABINICK; STANLEY PERLA;
NICHOLAS RADESCA; LESLIE D. MICHELSON; EDWARD G. RENDELL;
AMERICAN REALTY CAPITAL - RETAIL CENTERS OF AMERICA,
INCORPORATED; AR GLOBAL INVESTMENTS LLC; AMERICAN
FINANCE TRUST, INCORPORATED,

              Defendants - Appellees.

Appeal from the United States District Court for the District of Maryland, at Baltimore.
Catherine C. Blake, District Judge. (1:17-cv-00132-CCB)

Argued: December 11, 2018                                    Decided: March 11, 2019

Before NIEMEYER, DUNCAN, and QUATTLEBAUM, Circuit Judges.

Affirmed by published opinion. Judge Quattlebaum wrote the opinion, in which Judge
Niemeyer and Judge Duncan joined.
ARGUED: Jeffrey Simon Abraham, ABRAHAM, FRUCHTER & TWERSKY, LLP,
New York, New York, for Appellants. George Stewart Webb, Jr., VENABLE LLP,
Baltimore, Maryland, for Appellees. ON BRIEF: John B. Isbister, TYDINGS &
ROSENBERG, LLP, Baltimore, Maryland, for Appellants. John T. Prisbe, Michael J.
Wilson, VENABLE LLP, Baltimore, Maryland, for Appellees American Finance Trust,
Inc. and American Realty Capital – Retail Centers of America, Incorporated. Reid M.
Figel, David L. Schwarz, Daniel V. Dorris, KELLOGG HANSEN TODD FIGEL &
FREDERICK PLLC, Washington, D.C., for Appellees American Realty Capital Retail
Advisor, LLC, AR Global Investments LLC, Nicholas Radesca and Edward M. Weil, Jr.
Jay A. Dubow, Matthew D. Foster, Christopher B. Chuff, PEPPER HAMILTON LLP,
Philadelphia, Pennsylvania, for Appellees David Gong, Lisa Kabnick, and Stanley Perla.
Eric N. Whitney, Jeffrey A. Fuisz, ARNOLD & PORTER KAYE SCHOLER LLP, New
York, New York, for Appellees Leslie D. Michelson and Edward G. Rendall.

                                          2
QUATTLEBAUM, Circuit Judge:

       This case arises from the merger of American Realty Capital - Retail Centers of

America, Inc. (“RCA”) and American Finance Trust, Inc. (“AFIN”). After the merger,

the shareholders of RCA discovered information about AFIN’s financial condition that

indicated AFIN was worth less and was less healthy than represented in the proxy

statement that induced their vote for the merger. Believing they had been misled, the

RCA shareholders sued alleging the proxy statement was false and misleading under the

federal securities laws. However, the statements complained of were not false or

misleading and the alleged omissions were addressed by narrowly tailored warning

language. Therefore, we affirm the district court’s dismissal of the claims.

                                             I.

       RCA and AFIN’s merger stems from their relationship with a business known as

AR Global Investments LLC (“AR Global”). 1 AR Global, directly and through entities it

owns, creates and sells ownership interests in real estate investment trusts, which are

sometimes referred to as REITs. 2 AR Global’s affiliates then manage the day-to-day

operations of those REITs including the purchase, sale and rental of real estate assets.

This business model has historically produced substantial fee revenue for AR Global.

       1
         The facts described are taken from the complaint since we review the district
court’s order granting a motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules
of Civil Procedure.
       2
        REITs in a general sense are modeled after mutual funds and purport to provide
smaller investors the opportunity to share in the risks and rewards of real estate
investment with relatively favorable tax consequences.

                                             3
      Consistent with its business model, AR Global, through an affiliated company,

created RCA and AFIN and sold ownership interests in them. In addition, one of AR

Global’s affiliates managed their day-to-day operations.

      In 2014 and 2015, financial improprieties regarding several companies affiliated

with AR Global became public. As a result, a number of the REITs with whom AR

Global had management contracts terminated AR Global as their asset manager. Fearing

the loss of management fee revenue from additional terminations, AR Global developed a

plan to prevent other REITs from terminating their contracts. To effectuate this plan, AR

Global attempted to merge REITs with freely terminable management agreements into

REITs with longer management agreements that were more difficult, if not virtually

impossible, to break.

      AFIN had a management contract with AR Global that was difficult to terminate

because it had a twenty-year term. By contrast, RCA had a management contract that

could be easily terminated because it only required sixty days’ written notice and could

be terminated without cause. Consistent with its plan, AR Global sought to merge RCA

into AFIN to prevent RCA from terminating AR Global as its asset manager, thereby

protecting future management fee revenues.

      In response to the efforts of AR Global, in early 2016, AFIN and RCA began

merger negotiations. On September 7, 2016, RCA announced a merger agreement

between the two REITs. Under the terms of the agreement, RCA was to merge into AFIN

so that AFIN would be the surviving entity after the merger. In other words, the RCA

shareholders would become AFIN shareholders. The merger agreement provided that the

                                             4
RCA shareholders would receive a combination of cash and AFIN stock, estimated to be

$10.26, in exchange for each of their RCA shares.

      The merger had to be approved by RCA’s shareholders. To solicit the

shareholders’ vote on the merger, on or about December 16, 2016, RCA’s directors

disseminated a proxy statement (the “Proxy”) to the RCA shareholders. Like the merger

agreement, the Proxy estimated that the RCA shareholders would receive $10.26 per

RCA share from the merger.

      An estimate, by its very nature, is not certain. To know the actual—rather than

estimated—value the RCA shareholders would receive for their RCA shares, the current

per share net asset value (“NAV”) of AFIN stock would have been needed. However,

AFIN’s most recent calculation of its NAV was effective as of December 31, 2015. As of

that date, the value of AFIN’s NAV was $24.17. Even though it was almost a year old at

the time, AFIN’s $24.17 NAV, effective as of December 31, 2015, was used to arrive at

the $10.26 per share estimate of the value to be received by the RCA shareholders.

      Of course, changes in AFIN’s NAV after December 31, 2015, would necessarily

affect the actual value received by the RCA shareholders from the merger. If the NAV

increased after December 31, 2015 due to improvements in AFIN’s financial condition,

the actual value to the RCA shareholders from the merger would be greater than the

$10.26 per share estimate. On the other hand, if AFIN’s fortunes worsened and the NAV

decreased from its December 31, 2015 value, the actual per share value to the RCA

shareholders from the merger would be less than $10.26.

                                           5
      In addition to the information about the value to be received by the RCA

shareholders, the Proxy also contained information about AFIN and its financial

condition, including projections of AFIN’s future financial performance. These

projections were referred to as Standalone Projections.

      In February 2017, the RCA shareholders narrowly approved the merger by a

50.21% majority. Shortly after the merger, industry commentators began to question the

financial benefit of the merger to the RCA shareholders. For example, an industry

publication issued an article entitled “St. Valentine’s Day Massacre” which described the

damage the merger inflicted on the RCA shareholders. 3

      In the months following the merger, the RCA shareholders learned from several

SEC filings from AFIN information about AFIN’s financial condition the shareholders

did not know before the merger. First, they learned of a $27.3 million loss to AFIN

caused by SunTrust Bank’s decision not to renew leases for forty-five bank branches.

Second, they learned that AFIN’s estimated NAV as of December 31, 2016, was $23.37

per share, down from the $24.17 per share value referenced in the merger agreement and

the Proxy. Third, they learned AFIN’s real estate rental income (excluding income on

properties previously owned by RCA and acquired in the merger) had decreased by 3.7%

      3
          The phrase “St. Valentine’s Day Massacre” was popularized by the 1929
shooting ordered by the notorious mobster Al Capone. On February 14, 1929, in
retaliation for George “Bugs” Moran placing a bounty for Capone’s death, Capone
ordered the destruction of Moran and his gang. In carrying out Capone’s orders, the men
dressed as police officers, entered Moran’s headquarters, lined up Moran’s henchmen and
executed them.

                                            6
from the same quarter the year before. Fourth, they learned AFIN was reducing its annual

dividend distribution by more than 20%. Fifth, the RCA shareholders learned of AFIN’s

January 31, 2017 sale of its Merrill Lynch properties at a higher capitalization rate than

the capitalization rate used to calculate the December 31, 2015 NAV and thus at a price

that might lower AFIN’s NAV.

       Believing this information was known at the time of the merger and should have

been disclosed in the Proxy, eight named plaintiffs brought this putative class action on

behalf of the former RCA shareholders (the “RCA Shareholders”). They alleged RCA,

along with its directors Leslie D. Michelson and Edward G. Rendell and AR Global’s

CEO Edward M. Weil, Jr. (“Defendants”) 4, violated Section 14(a) of the Securities

Exchange Act and Securities and Exchange Commission (“SEC”) Rule 14a-9 by

disseminating a false and misleading proxy statement to solicit approval of the merger

between RCA and AFIN. Defendants moved to dismiss this claim pursuant to Rule

12(b)(6) of the Federal Rules of Civil Procedure. The district court granted the motions

       4
          In addition to these defendants, the RCA Shareholders also sued AR Global, its
affiliate American Realty Capital Retail Advisor, LLC and AFIN along with AFIN’s
directors Nicholas Radesca, David Gong, Stanley Perla and Lisa D. Kabinick. The RCA
Shareholders alleged nine counts of securities laws violations. The district court
dismissed all nine. Only two were appealed. AR Global, American Realty Advisor, LLC,
Radesca, Gong, Perla and Kabinick were named as defendants in the counts that were
dismissed by the district judge, but not appealed.

       All of these defendants are listed as active parties in the district court’s order and
on our docket. However, Michelson, Rendell, AR Global Investments LLC, AFIN and
RCA do not appear to remain defendants after the amended complaint was filed. To the
extent they do remain, however, any claims against them would be dismissed by this
decision.

                                             7
related to this claim. The RCA Shareholders timely appealed, and we have jurisdiction of

this appeal pursuant to 28 U.S.C. § 1291.

                                               II.

       This Court reviews an order granting a motion to dismiss de novo. Nemet

Chevrolet, Ltd. v. Consumeraffairs.com, Inc., 591 F.3d 250, 253 (4th Cir. 2009). A

motion to dismiss pursuant to Rule 12(b)(6) tests the sufficiency of the claims pled in a

complaint. To sufficiently plead a claim, the Federal Rules of Civil Procedure require that

“[a] pleading that states a claim for relief must contain . . . a short and plain statement of

the claim showing that the pleader is entitled to relief . . . .” Fed. R. Civ. P. 8(a)(2).

       To meet the Rule 8 standard and survive a motion to dismiss, “a complaint must

contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is

plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic

Corp. v. Twombly, 550 U.S. 544, 570 (2007)). To contain sufficient factual matter to

make a claim plausible, the factual allegations must “allow[] the court to draw the

reasonable inference that the defendant is liable for the misconduct alleged.” Id.

       A court should grant a Rule 12(b)(6) motion if, “after accepting all well-pleaded

allegations in the plaintiff’s complaint as true and drawing all reasonable factual

inferences from those facts in the plaintiff’s favor, it appears certain that the plaintiff

cannot prove any set of facts in support of his claim entitling him to relief.” Edwards v.

City of Goldsboro, 178 F.3d 231, 244 (4th Cir. 1999).

                                                8
                                            III.

       Using this standard, we review the RCA Shareholders’ Section 14(a) and Rule

14a-9 claim. Section 14(a) makes it unlawful to solicit a proxy in violation of applicable

SEC rules and regulations. 15 U.S.C. § 78n(a). SEC Rule 14a-9, promulgated pursuant to

Section 14(a), prohibits the solicitation of proxies through a proxy statement that contains

false or misleading material facts or omits any material fact that leaves a proxy statement

false or misleading. 5

       Whether a statement or omission is materially misleading “depends on the

perspective of a reasonable investor.” Omnicare, Inc. v. Laborers Dist. Council Const.

Indus. Pension Fund, 135 S. Ct. 1318, 1327 (2015). For a fact to be material, “there must

be 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.” TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976) (internal

quotation marks omitted).

       5
           SEC Rule 14a-9 states:

       No solicitation subject to this regulation shall be made by means of any
       proxy statement, form of proxy, notice of meeting or other communication,
       written or oral, containing any statement which, at the time and in the light
       of the 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 or
       necessary to correct any statement in any earlier communication with
       respect to the solicitation of a proxy for the same meeting or subject matter
       which has become false or misleading.

17 C.F.R. § 240.14a-9(a).

                                             9
       The RCA Shareholders allege the Proxy was materially misleading due to its

statements and omissions regarding: (A) the AFIN NAV; (B) the sale of the Merrill

Lynch properties; (C) SunTrust Bank; and (D) the AFIN Standalone Projections. We

address these allegations in turn.

                                         A.

       The RCA Shareholders argue that the Proxy’s repeated references to AFIN’s NAV

as $24.17 were materially false or misleading because, by the time the Proxy was issued,

AFIN’s NAV was no longer $24.17. The RCA Shareholders claim that, by the time the

Proxy was disseminated, the events causing AFIN’s NAV to decrease were known and

should have been disclosed. To put it plainly, they claim the information about the NAV

in the Proxy was outdated, and that Defendants knew it but failed to disclose the updated

information.

       To consider those allegations, we turn to the language of the Proxy which the

RCA Shareholders incorporated into the amended complaint by reference. See Tellabs,

Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007) (holding that a court may

consider documents incorporated into the complaint by reference when ruling on a

12(b)(6) motion). The Proxy stated AFIN’s NAV of $24.17 was effective as of December

31, 2015. The RCA Shareholders do not allege the NAV was incorrect as of that date.

                                           10
Moreover, the Proxy did not state AFIN’s current NAV was $24.17. Therefore, the

statements in the Proxy about the NAV were not false or misleading. 6

      Regarding the RCA Shareholders’ allegation that AFIN’s NAV should have been

updated, the Proxy included multiple warnings on that very point. First, the Proxy warned

that AFIN’s NAV of $24.17 did not reflect events after December 31, 2015, that would

affect AFIN’s NAV. Second, the Proxy warned that the exchange rate, which was based

on the NAV, would not be updated. Third, the Proxy warned that changes in the business,

operations, financial position and prospects of either company might affect the value of

AFIN or RCA. Fourth, the Proxy warned that the RCA Shareholders could not be sure of

the value of AFIN’s common stock they would receive upon finalization of the merger. 7

      This warning language in the Proxy implicates what is known as the “bespeaks

caution” doctrine. Under that doctrine, claims are “subject to dismissal if cautionary

language in the offering document negates the materiality of the alleged

misrepresentations or omissions.” Gasner v. Bd. of Supervisors, 103 F.3d 351, 358 (4th

Cir. 1996). While general warnings may not negate the materiality of misrepresentations

      6
         To further address this point, the December 31, 2015 NAV estimate was
approved and released by AFIN on March 17, 2016. The Proxy stated that AFIN prepares
annual statements of estimated share values. Consistently, AFIN’s next NAV estimate
was released approximately a year later.
      7
        The Proxy even included a summary of the financial analysis prepared by BMO
Capital Markets Corp. (“BMO”) which served as AFIN’s financial advisor for the
merger. The analysis revealed that AFIN’s NAV was likely not $24.17 at the time of the
merger. As the amended complaint points out, BMO’s analysis indicated that AFIN’s
NAV was between $20.65 and $23.37.

                                           11
or omissions, specific warnings that are tailored to address the alleged misrepresentation

or omission may negate their materiality when the total mix of information would not be

significantly altered by the disclosures sought by the plaintiffs. Compare Singer v. Reali,

883 F.3d 425, 442–43 (4th Cir. 2018) (finding that despite the general warnings, the

omission in question was materially misleading because the reasonable investor would

have viewed the total mix of information significantly altered if the omission had been

disclosed), with Gasner, 103 F.3d at 359–60 (dismissing claims of misrepresentation and

omissions where the cautionary statements were tailored precisely to address the alleged

misrepresentation or omission). 8

       Unlike the brief and general warning this Court found insufficient to preclude a

claim in Singer, the warnings in the Proxy are extensive, specific and tailored. Further,

they address the very complaints the RCA Shareholders make about the NAV. As such,

even accepting the allegations about the NAV as true, the warnings here negated the

materiality of the alleged statements and omissions concerning the $24.17 NAV as of

       8
         The caselaw on which we rely in reaching our result was largely developed in the
context of SEC Rule 10b-5. Other circuits have construed Rule 10b-5 and Rule 14a-9
similarly in defining misleading statements and omissions. See, e.g., Scattergood v.
Perelman, 945 F.2d 618, 622 (3d Cir. 1991) (explaining that, with respect to the
materiality requirement, “Rule 14a-9 can be viewed simply as a twin of Rule 10b-5
applicable to misleading statements and omissions in proxy materials”); Golub v. PPD
Corp., 576 F.2d 759, 764 (8th Cir. 1978) (explaining that “a decision . . . rendered in the
context of a Rule 10b-5 suit may well be applicable in a case involving [§] 14(a) and
Rule 14a-9” because the two rules “are in pari materia and should be similarly
construed”). We follow our sister circuits here and hold that the materiality doctrines at
issue in this case that were developed in the Rule 10b-5 context are also applicable in the
Rule 14a-9 context.

                                            12
December 31, 2015. To find otherwise would be to ignore the express warning language

of the Proxy.

       In their briefs, the RCA Shareholders point to authority for the proposition that

statements can be misleading if factual information in disclosure documents is known to

be false. Significantly, however, this case does not involve such a situation. This case

involves statements that were allegedly false and misleading because they were outdated.

But the statements identified their effective date and are not disputed as of that effective

date. Further, they were followed by warnings that the statements may no longer be

accurate and would not be updated. The RCA Shareholders point to no precedent

addressing facts like those present here.

       While the RCA Shareholders’ desire for updated information about AFIN’s NAV

is understandable, they had every right to walk away from the merger if they were not

satisfied with outdated financial information. They had every right to decide not to go

forward if they were not given current NAV numbers. The razor thin merger vote might

reflect that sentiment from some of the shareholders. But given the Proxy’s clear

warnings, the RCA Shareholders cannot make a plausible claim that the Proxy statements

regarding AFIN’s NAV were materially false or misleading. For the foregoing reasons,

accepting the allegations in the complaint as true and drawing all reasonable factual

inferences in favor of the RCA Shareholders, the allegations concerning AFIN’s NAV

fail to state a plausible claim for relief.

                                              13
                                            B.

       The RCA Shareholders also allege the Proxy failed to disclose material

information about AFIN’s sale of the Merrill Lynch properties. Specifically, they allege

the capitalization rate for the transaction was 8.60%, almost two percentage points higher

than AFIN’s overall capitalization rate associated with its December 31, 2015 NAV. The

RCA Shareholders claim the omission of the higher capitalization rate for the Merrill

Lynch properties—which indicates a sale of those properties at a price that might lower

AFIN’s NAV from its December 31, 2015 value—made references in the Proxy to

AFIN’s December 31, 2015 NAV materially misleading.

       Although carved out as a separate argument in their briefs, these allegations are

essentially no different from the allegations about the NAV. The RCA Shareholders

claim an event that occurred after the December 31, 2015, which had the effect of

lowering AFIN’s NAV, should have been disclosed. But that is exactly what the Proxy

warned would not be done.

       The same warnings described above apply to the alleged statements and omissions

regarding the Merrill Lynch capitalization rate. See discussion supra Section III.A.

Again, given those clear warnings, the RCA Shareholders cannot make a plausible claim

that the alleged omissions regarding the Merrill Lynch capitalization rate made the Proxy

materially false or misleading. For the foregoing reasons, accepting the allegations in the

complaint as true and drawing all reasonable factual inferences in favor of the RCA

Shareholders, the allegations concerning the Merrill Lynch capitalization rate fail to state

a plausible claim for relief.

                                            14
                                            C.

       The RCA Shareholders also allege that the Proxy’s failure to disclose a loss

resulting from SunTrust Bank’s decision not to renew leases for forty-five branches was

materially misleading. Specifically, they assert that the Proxy’s discussion of AFIN’s

relationship with SunTrust Bank—which accounted for 17.8% of AFIN’s rental income

as of September 30, 2016—was materially misleading because it failed to disclose a

$27.3 million loss with respect to forty-five of SunTrust’s bank branches.

       The decision to take the loss was not made until after the merger. The RCA

Shareholders claim that even if the loss did not have to be disclosed in the Proxy because

it was not finalized until after the merger, the conditions leading up to the loss were

known and should have been disclosed in the Proxy.

       To consider this claim, we turn again to the language of the Proxy. While the

$27.3 million loss was not specified, the Proxy disclosed extensive information about the

SunTrust properties. It disclosed the underlying properties leased to SunTrust and, for

each property, it also disclosed the initial acquisition and improvement costs, the total

capital costs, accumulated depreciation, annual rental income, encumbrances and lease

expiration dates. The Proxy also disclosed that SunTrust had declared its intention to

vacate when the lease expired for forty-five of its bank branch properties. In light of this

information, which was disclosed, we find that the omission of the specific amount of the

loss for the SunTrust properties and the conditions leading to it did not render the Proxy

materially misleading.

                                            15
       Further, the warnings described above apply to these allegations as well. See

discussion supra Section III.A. The loss at issue here is the type of event that the Proxy

warned could happen after December 31, 2015. The Proxy made clear that, if such an

event did happen, it would not be reflected in updated disclosures. Thus, given the

Proxy’s clear warnings that the information would not be included, the RCA

Shareholders cannot now make a plausible claim that the alleged omissions made the

Proxy materially false or misleading. For the foregoing reasons, accepting the allegations

in the complaint as true and drawing all reasonable factual inferences in favor of the RCA

Shareholders, the allegations concerning the SunTrust properties fail to state a plausible

claim for relief.

                                           D.

       The RCA Shareholders also allege that AFIN’s Standalone Projections rendered

the Proxy materially misleading. The Proxy contained a two-page section referred to as

Standalone Projections that included a chart projecting AFIN’s future financial

performance. The RCA Shareholders allege that the Standalone Projections were

materially false or misleading because they omitted information that: (1) several of the

areas of projected performance had declined in 2016 before the merger; (2) AFIN’s rental

income had grown only by 2% in 2016; and (3) AFIN’s disappointing rental income

growth resulted from the sale of the Merrill Lynch properties and the SunTrust Bank loss

described above. Essentially, the RCA Shareholders argue that this negative financial

information should have been disclosed and, because it was not, the RCA Shareholders

were not given the full picture of AFIN’s financial condition. Further, the RCA

                                           16
Shareholders claim these omissions left the Proxy generally, and the Standalone

Projections specifically, materially false or misleading.

       The Standalone Projections, by their nature, related to events in the future.

Projections of future performance are generally not actionable under the federal securities

laws as long as they are not worded as guarantees. Raab v. Gen. Physics Corp., 4 F.3d
286, 290 (4th Cir. 1993). However, the Supreme Court has held that statements of

opinion may be actionable if the statement omits material facts and if “those facts conflict

with what a reasonable investor would take from the statement itself . . . .” Omnicare,
135 S. Ct. at 1329. Despite that holding, Omnicare cautions that “whether an omission

makes an expression of opinion misleading always depends on context.” Id. at 1330. An

investor reads each statement “in light of all its surrounding text, including hedges,

disclaimers, and apparently conflicting information.” Id. “[A]n omission that renders

misleading a statement of opinion when viewed in a vacuum may not do so once that

statement is considered, as is appropriate, in a broader frame.” Id. A reasonable investor

is expected to understand a statement of opinion in its full context and there will only be

liability for “the omission of material facts that cannot be squared with such a fair

reading.” Id.

       Based on this authority, the allegations of the RCA Shareholders must be

considered in the context of the warning language presented with the Standalone

Projections. The Proxy contained nearly a page and a half of context including specific

and tailored cautionary language regarding the estimates. First, it stated that “the AFIN

Standalone Projections, is not being included in this joint proxy statement/prospectus to

                                             17
influence your vote . . . .” J.A. 223. The Proxy explained that the Standalone Projections

were only disclosed because they had been made available to various professionals in the

merger negotiation process.

       The Proxy then warned that including the projections did not indicate that AFIN,

their advisors or any other person ever considered “the AFIN Standalone Projections to

be material or to be necessarily predicative of actual future results and the AFIN

Standalone Projections should not be relied upon as such.” Id. It also stated that “[t]here

can be no assurance that the AFIN Standalone Projections will be realized or that actual

results will not be significantly higher or lower than forecasted.” Id.

       And if there were still any question about the materiality of the projections, the

Proxy added that “although the AFIN Standalone Projections presented below is [sic]

presented with numerical specificity, these projections are not factual. The AFIN

Standalone Projections were based on numerous variables and assumptions that were

deemed to be reasonable as of the respective dates when the projections were finalized.

These assumptions are inherently uncertain . . . .” Id.

       The Proxy went further to make clear that the Standalone Projections were subject

to change. The warnings language stated that the “AFIN Standalone Projections reflect

assumptions that are subject to change and do not reflect revised prospects for AFIN’s

business, changes in general business or economic conditions or any other transaction or

event that has occurred or may occur . . . .” J.A. 223–224. Consistently, it added “AFIN

has not prepared revised standalone projections to take into account other variables that

have changed since the dates on which the AFIN Standalone Projections were finalized.”

                                             18
J.A. 224. It again warned that “[t]here can be no assurance that the AFIN Standalone

Projections will be realized or that AFIN’s future financial results will not materially vary

from the AFIN Standalone Projections.” Id.

       The Proxy even advised that despite the possibility of change, the projections

would not be updated. The Proxy emphasized that AFIN did “not intend to update or

otherwise revise the AFIN Standalone Projections to reflect circumstances existing

after the date when made or to reflect the occurrence of future events, even in the

event that any or all of the assumptions underlying such prospective financial

information are no longer appropriate.” Id. (emphasis in original).

       Following the Supreme Court’s guidance in Omnicare, the omissions alleged by

the RCA Shareholders can quite easily be squared with the language of the Proxy’s

extensive and tailored warnings. In fact, those warnings addressed the very claims

asserted by the RCA Shareholders. In light of the Proxy’s clear warnings, the alleged

improper omissions cannot plausibly be material.

       Further, beyond the warning language, the Proxy contained information explaining

AFIN’s recent poor financial performance. The RCA Shareholders candidly explain that

“[t]he gravamen of Plaintiffs’ claim with respect to the Projections is that they

misleadingly portrayed AFIN as a growing enterprise.” Appellants’ Reply Br. 7. But this

statement and the allegations based on it are contradicted by the language in the Proxy.

The Proxy did not portray AFIN as a financially “growing enterprise.” In fact, it warned

of the opposite.

                                             19
       The Proxy warned that “AFIN has incurred operating losses and may not

achieve profitability.” J.A. 135. (emphasis in original). It then provided the specific

reason for that warning explaining “[s]ince its inception in January 2013 through

September 30, 2016, AFIN has incurred cumulative net losses . . . equal to $62.6 million.

The extent of AFIN’s future operating losses and the timing of the profitability are highly

uncertain, and AFIN may never achieve or sustain profitability.” Id.

       It is difficult to imagine more clear warning language or language that would more

squarely address the allegations that a proxy statement was materially false and

misleading. Given the Proxy’s clear warnings, the RCA Shareholders cannot make a

plausible claim that the alleged omissions made the Proxy materially false or misleading.

For the foregoing reasons, accepting the allegations in the complaint as true and drawing

all reasonable factual inferences in favor of the RCA Shareholders, the allegations

concerning the Standalone Projections fail to state a plausible claim for relief. 9

                                             IV.

       The federal securities laws provide important protections against false and

misleading statements and omissions. However, they do not provide guarantees of

       9
         The RCA Shareholders also appeal the district court’s ruling that they failed to
state a plausible claim that RCA and AFIN violated Section 13(e) of the Securities
Exchange Act of 1934, 15 U.S.C. § 78m(e), and its accompanying regulation, SEC Rule
13e-3, 17 C.F.R. § 240.13e-3. This appeal raises the question of whether there is an
implied cause of action under Section 13(e). We need not address this issue in this case
because, even if we were to imply a private cause of action, the RCA Shareholders’ claim
under this rule is duplicative of their Section 14(a) claim that we have already held to be
insufficient. Thus, for the reasons stated above, the allegations concerning the Section
13(e) claim fail to state a plausible claim for relief.

                                              20
financial success. Likewise, they do not render carefully tailored warnings meaningless.

In the end, words matter, including words in proxy statements. When the words of a

proxy statement, like the ones in this case, are not false or misleading and contain tailored

and specific warnings about the very ommissions that are the subject of the allegations,

those words render the claim for relief implausible. The words in the Proxy here do just

that.

        As the district court correctly concluded, the complaint fails to state claims for

which relief can be granted. For all the foregoing reasons, the judgment of the district

court is

                                                                              AFFIRMED.

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