In Re: Rockefeller , 184 F.3d 280 ( 1999 )


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  •                                                                                                                            Opinions of the United
    1999 Decisions                                                                                                             States Court of Appeals
    for the Third Circuit
    7-21-1999
    In Re: Rockefeller
    Precedential or Non-Precedential:
    Docket 98-5394
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    Recommended Citation
    "In Re: Rockefeller" (1999). 1999 Decisions. Paper 210.
    http://digitalcommons.law.villanova.edu/thirdcircuit_1999/210
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    Filed July 19, 1999
    UNITED STATES COURT OF APPEALS
    FOR THE THIRD CIRCUIT
    Nos. 98-5394 & 98-5395
    IN RE: ROCKEFELLER CENTER PROPERTIES, INC.
    SECURITIES LITIGATION
    FRANK DEBORA;
    WILSON WHITE;
    STANLEY LLOYD KAUFMAN, JR.;
    JOSEPH GROSS,
    Appellants at No. 98-5394
    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; and RENEE B. FISHER
    FOUNDATION, Renee B. Fisher Foundation, Inc.,
    Appellants at No. 98-5395
    On Appeal from the United States District Court
    for the District of Delaware
    D.C. Civil Action No. 96-cv-00543
    (Honorable Roderick R. McKelvie)
    Argued March 10, 1999
    Before: MANSMANN, SCIRICA and NYGAARD,
    Circuit Judges
    (Filed July 19, 1999)
    MICHAEL D. DONOVAN, ESQUIRE
    (ARGUED)
    Donovan & Miller
    1608 Walnut Street, Suite 1400
    Philadelphia, Pennsylvania 19103
    JAMES C. STRUM, ESQUIRE
    PAMELA S. TIKELLIS, ESQUIRE
    Chimicles & Tikellis
    One Rodney Square
    P.O. Box 1035
    Wilmington, Delaware 19899
    Attorneys for Appellants
    MAX GITTER, ESQUIRE (ARGUED)
    Paul, Weiss, Rifkind, Wharton
    & Garrison
    1285 Avenue of the Americas
    New York, New York 10019-6064
    Attorney for Appellees,
    Goldman Sachs Mortgage Co.,
    Whitehall Street Real Estate
    Limited Partnership V, W.H.
    Advisors, Inc. V, WH Advisors, L.P.
    V, The Goldman Sachs Group,
    L.P., Goldman, Sachs & Co., and
    Daniel M. Neidich
    RICHARD D. ALLEN, ESQUIRE
    Morris, Nichols, Arsht & Tunnell
    1201 North Market Street
    P.O. Box 1347
    Wilmington, Delaware 19899
    RUSSELL E. BROOKS, ESQUIRE
    Milbank, Tweed, Hadley & McCloy
    One Chase Manhattan Plaza
    New York, New York 10005
    Attorneys for Appellee,
    David Rockefeller
    2
    ROBERT K. PAYSON, ESQUIRE
    ARTHUR L. DENT, ESQUIRE
    Potter, Anderson & Corroon
    Hercules Plaza
    1313 Market Street
    P.O. Box 951
    Wilmington, Delaware 19899
    Attorneys for Appellees,
    Peter D. Linneman and
    Richard M. Scarlata
    OPINION OF THE COURT
    SCIRICA, Circuit Judge.
    This securities appeal arises from the acquisition of
    Rockefeller Center Properties, Inc. by a group of investors
    led by Whitehall Street Real Estate Limited Partnership V.
    Plaintiffs are former Rockefeller Center Properties, Inc.
    shareholders who allege the proxy statement and other
    documents prepared in connection with the acquisition
    were materially misleading because they failed to disclose
    (1) that the Whitehall Group was negotiating to sell roughly
    20% of Rockefeller Center to General Electric following the
    acquisition and (2) that, as a result of the acquisition, the
    Whitehall Group would own transferable development
    rights (air rights) associated with Rockefeller Center.1 The
    District Court granted defendants summary judgment on
    both claims, holding the failure to disclose such
    negotiations and the acquisition of development rights was
    not material. We will vacate and remand its grant of
    summary judgment on plaintiffs' sale negotiations claim
    but will affirm the grant of summary judgment on the
    transferable development rights claim.
    _________________________________________________________________
    1. Defendants include some members of the Whitehall Group, some of
    their affiliates and former officers and directors of Rockefeller Center
    Properties, Inc.
    3
    I.
    Rockefeller Center Properties, Inc. was a real estate
    investment trust created in 1985 via a $750 million initial
    public offering of common stock. Rockefeller Center
    Properties, Inc. used the offering proceeds together with
    $550 million raised through the sale of discounted
    debentures to make a $1.3 billion loan to Rockefeller
    Center Properties and RCP Associates, two partnerships
    (the "Partnerships")2 that at the time owned most of
    Rockefeller Center, in midtown Manhattan. To secure the
    loan, Rockefeller Center Properties, Inc. received two
    mortgages on the Partnerships' interests in Rockefeller
    Center.
    In the fall of 1994, Rockefeller Center Properties, Inc.
    realized it lacked sufficient cash to make upcoming
    debenture payments. In order to avoid default, it signed
    financing agreements with Whitehall Street Real Estate
    Limited Partnership V and Goldman Sachs & Co. Whitehall
    agreed to make a $150 million loan to Rockefeller Center
    Properties, Inc. in exchange for an assignment of part of the
    Rockefeller Center mortgages, warrants for Rockefeller
    Center Properties, Inc. stock and "excess" cash. Goldman
    Sachs bought $75 million of Rockefeller Center Properties,
    Inc. debentures in exchange for a seat on Rockefeller
    Center Properties, Inc.'s board of directors. Goldman Sachs
    subsequently designated defendant Daniel M. Niedich, who
    served as a director until August 1995.
    Rockefeller Center Properties, Inc.'s financial problems
    were soon compounded by the Partnerships' financial
    problems. On May 11, 1995, the Partnerships filed for
    Chapter 11 bankruptcy and ceased making mortgage
    payments. Realizing that without these payments it would
    soon be unable to meet its own financial obligations,
    Rockefeller Center Properties, Inc.'s board of directors
    began to consider recapitalization and acquisition
    proposals. Three groups expressed significant interest. The
    first group was led by Samuel Zell, a Chicago real-estate
    _________________________________________________________________
    2. The partnerships were owned by The Rockefeller Group, Inc. ("RGI"),
    which was in turn owned by the Mitsubishi Estate Co. of Japan and
    Rockefeller family trusts.
    4
    investor, and included General Electric Company, whose
    subsidiary the National Broadcasting Company leased
    approximately 20% of Rockefeller Center. The second was
    led by Gotham Partners, L.P., an investment firm that held
    5.6% of Rockefeller Center Properties, Inc.'s shares. The
    third group included Whitehall Street Real Estate Limited
    Partnership V, Goldman Sachs & Co., Daniel M. Niedich
    and David Rockefeller. On August 11, 1995, Rockefeller
    Center Properties, Inc. entered into a combination
    agreement with the Zell Group, in which the Zell Group
    pledged a $250 million cash capital contribution plus $700
    million in new financing. The agreement also contained an
    escape clause under which Rockefeller Center Properties,
    Inc. could terminate the combination plan and pursue
    another proposal it considered superior.
    In the fall of 1995, the Partnerships filed a Chapter 11
    reorganization plan in which they agreed to transfer full
    ownership of Rockefeller Center to Rockefeller Center
    Properties, Inc. Also in the fall, the Zell, Gotham and
    Whitehall Groups continued to submit additional proposals
    to Rockefeller Center Properties, Inc. In September,
    Rockefeller Center Properties, Inc.'s board rejected the
    Whitehall Group's offer to buy out Rockefeller Center
    Properties, Inc. for $100 million, an amount that equaled
    $6.50 per share. It also rejected the Gotham Group's $105
    million rights offering proposal. But in November the board
    unanimously approved the Whitehall Group's all-cash
    merger bid of $8.00 per share, believing this offer was
    superior to the Zell Group's final bid, which contained both
    cash and debt components and was valued at $7.65 to
    $7.76 per share.3 At about the same time, Rockefeller
    Center Properties, Inc., Whitehall and Goldman Sachs
    entered into a rights offering agreement under which
    Rockefeller Center Properties, Inc. would be able to make a
    $200 million public rights offering4 if Rockefeller Center
    _________________________________________________________________
    3. The Whitehall Group's $8.00 per share bid appears to represent a 50%
    premium over the price of Rockefeller Center Properties, Inc. stock before
    the bidding for Rockefeller Center Properties, Inc. began.
    4. In a rights offering, an issuer's existing shareholders "are granted
    the
    opportunity (i.e., right) to purchase [a] new offering of shares, usually
    at
    a discount below their current market price."See JAMES D. COX ET AL.,
    SECURITIES REGULATION 217 (2d ed. 1997).
    5
    Properties, Inc.'s shareholders did not approve the
    Whitehall Group's bid.
    On February 14, 1996, Rockefeller Center Properties, Inc.
    filed a final proxy statement regarding the Whitehall
    Group's proposed merger with the SEC and distributed it to
    shareholders. The proxy statement represented that
    Rockefeller Center Properties, Inc.'s board believed the
    company might not remain solvent if the merger failed and
    explained that the rights offering might be pursued if the
    merger were rejected. It also stated that the board believed
    the rights offering, even if successful, would not allow
    Rockefeller Center Properties, Inc. to take ownership of
    Rockefeller Center. In addition, the proxy statement
    mentioned an appraisal valuing Rockefeller Center at $1.25
    billion. The appraisal stated that this amount did not
    include any transferable development rights, or air rights,5
    associated with Rockefeller Center because Rockefeller
    Center Properties, Inc.'s mortgage did not encumber those
    rights.
    The proxy statement also contained a detailed description
    of the Whitehall Group's plans if the merger were approved.
    It stated that the Whitehall Group would take title to
    Rockefeller Center and raise at least $430 million in debt
    financing, part of which would be used to repay Rockefeller
    Center Properties, Inc.'s existing debt.
    In addition, the proxy statement contained references to
    possible "credit lease financing" transactions with General
    Electric. Specifically, it described a September 1995
    transaction in which Rockefeller Center Properties, Inc.,
    _________________________________________________________________
    5. In New York City, a real property owner who acquires air rights from
    another property can develop his own property beyond the limits zoning
    laws would otherwise impose. Air rights are created when "owners of real
    property [do] not develop[ ] their property to the full extent" allowed by
    the zoning laws. Penn Central Transp. Co. v. New York City, 
    438 U.S. 104
    , 113-14 (1978). Air rights associated with a property designated as
    a landmark--as Rockefeller Center is--have a limited number of possible
    purchasers: the rights may be transferred only to directly adjacent lots
    within the same block, lots directly across the street and any lot that is
    part of a chain of lots under common ownership with the landmark and
    separated from the landmark only by streets.
    6
    General Electric and a Zell affiliate agreed to modify NBC's
    lease so that Rockefeller Center Properties, Inc. could
    obtain credit lease financing6 and referred to the February
    1996 Schedule 13E-3 in which Rockefeller Center
    Properties, Inc. reported this transaction with the SEC. The
    possibility of a lease modification was also briefly
    mentioned in documents presented to Rockefeller Center
    Properties, Inc.'s board by the company's financial advisors
    and later filed with the SEC. Finally, the proxy statement
    mentioned the possibility of "a credit leasefinancing
    arrangement relating to a lease from, or guaranteed by, GE"
    in connection with the rights offering. It does not appear
    that the proxy statement mentioned whether the Whitehall
    Group contemplated pursuing a lease financing with NBC,
    General Electric or anyone else.
    Accompanying the proxy statement were a letter signed
    by Rockefeller Center Properties, Inc.'s president and its
    chairman of the board as well as a letter from the board.
    The first letter described the rights offering agreement,
    stating that Rockefeller Center Properties, Inc. had not
    decided whether it would pursue such an offering if the
    merger failed. The second letter stated that the board had
    unanimously approved the merger.
    On March 25, 1996, Rockefeller Center Properties, Inc.'s
    shareholders approved the merger. Soon thereafter, the
    Bankruptcy Court approved the Partnerships'
    reorganization plan, which transferred Rockefeller Center to
    the Whitehall Group.
    On April 23, 1996, Rockefeller Center Properties, Inc.
    agreed to sell General Electric the property subject to the
    NBC lease for $440 million, an amount defendants claim
    was equal to the present value of the future payments due
    under the lease. A May 6, 1996 Wall Street Journal article
    _________________________________________________________________
    6. A 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. See RICHARD R. GOLDBERG, "Commercial Real Estate
    Securitization: Capital Markets Financing for Debt and Equity," 2
    MODERN REAL ESTATE TRANSACTIONS 1745 (11th ed.). Foran overview of asset
    securitization, see generally Steven L. Schwarcz, The Alchemy of Asset
    Securitization, 1 STAN. J.L. BUS. & FIN. 133 (1994).
    7
    describing the sale mentioned that General Electric and
    NBC had been considering this transaction for over two
    years. In a June 6, 1996 New York Daily News article, an
    NBC executive vice president stated that NBC began
    thinking about the transaction in 1995.
    II.
    Plaintiffs filed suit on November 15, 1996, claiming that
    defendants violated Sections 10(b) and 14(a) of the
    Securities Exchange Act of 1934, 15 U.S.C. S 78aa et seq.,
    and SEC rules promulgated thereunder through
    misstatements and omissions in connection with their
    acquisition of Rockefeller Center Properties, Inc. Plaintiffs
    made essentially four allegations, two of which they raise
    on appeal: first, that defendants failed to disclose the
    Whitehall Group's intention to sell a portion of Rockefeller
    Center to General Electric, and second, that defendants
    failed to disclose the existence of the air rights and the fact
    that the Whitehall Group would acquire them if its merger
    bid were approved.7
    On April 30, 1997, defendants filed a motion to dismiss,
    supporting this motion with an affidavit containing, inter
    alia, a 1994 appraisal of Rockefeller Center and newspaper
    articles discussing the 1995 "bidding war" for Rockefeller
    Center Properties, Inc. Defendants also referred to a
    January 1997 affidavit containing several documents
    Rockefeller Center Properties, Inc. had filed with the SEC.
    Plaintiffs responded to defendants' motion on July 9, 1997,
    submitting the Form 10-K Rockefeller Center Properties,
    Inc. filed with the SEC in 1996, the Form 10-K the
    Rockefeller Center Properties Trust filed in 1997, two
    bankruptcy disclosure statements filed by the Partnerships
    _________________________________________________________________
    7. In District Court, plaintiffs also claimed that defendants failed to
    disclose the interest of certain companies in leasing property at
    Rockefeller Center at "premium rates" and alleged that defendants
    "understated the potential alternatives to the merger" with the Whitehall
    Group. The District Court granted defendants summary judgment on
    these claims because it concluded the misstatements or omissions
    plaintiffs alleged were not material. These claims have not been raised on
    appeal.
    8
    and a transcript from the Partnerships' bankruptcy
    hearings.
    On October 7, 1997, the court heard argument on the
    motion to dismiss. Following argument, plaintiffs submitted
    a letter from Winthrop, Stimson, Putnam & Roberts, a New
    York law firm, to the New York City Planning Commission
    regarding the Rockefeller Center air rights. Later, plaintiffs
    also submitted two newspaper articles "discussing the
    interest of several parties in Rockefeller Center."
    The District Court issued its ruling on December 7, 1997.
    Because the court had considered "affidavits and other
    evidence submitted by the parties," it converted the motion
    to dismiss into a motion for summary judgment under Rule
    12(b). The District Court granted defendants summary
    judgment with respect to the General Electric sale
    negotiations claim. After suggesting that defendants'
    disclosure may have been sufficient, the court observed
    that "[p]laintiffs offer no proof that defendants knew of the
    details of [the General Electric] transaction at the time of
    the Proxy Statement or the shareholder vote." But the court
    decided it need not resolve either issue because it
    concluded the General Electric transaction was not
    materially different from the potential lease financing
    disclosed in the proxy statement. It reasoned that because
    both a sale and a lease financing provide an "immediate
    source of cash," they are economically identical. It added
    that because General Electric's general interest in
    Rockefeller Center was "well-known," the details of the
    potential transaction were not material. Finally, the court
    noted that General Electric was a rival bidder but did not
    offer more than the Whitehall Group, a fact which
    suggested to the court that no reasonable shareholder
    would have considered the potential sale of part of
    Rockefeller Center important in deciding how to vote on the
    merger.
    The District Court refused to grant defendants summary
    judgment on plaintiffs' transferable development rights (air
    rights) claim. Finding the proxy statement did not disclose
    that Rockefeller Center Properties, Inc. would acquire the
    air rights when it acquired Rockefeller Center, the court
    then examined whether this omission was material. The
    9
    court determined it could not conclude the air rights were
    immaterial because it had no evidence to support
    defendants' claims that the air rights were either impossible
    to value or of minimal value.
    On December 23, 1997, plaintiffs moved for reargument
    or, in the alternative, for certification for interlocutory
    appeal, claiming the District Court had improperly
    converted the motion to dismiss into a motion for summary
    judgment. They also filed a Rule 56(f) affidavit documenting
    their need for discovery. On March 4, 1998, defendants
    moved for summary judgment on plaintiffs' air rights claim.
    They supported this motion with affidavits from Robert Von
    Ancken, a real estate appraiser who had appraised
    Rockefeller Center in 1994, and Norman Marcus, former
    general counsel to the New York City Planning Commission
    and author of many laws governing air rights. Von Ancken
    explained his appraisal of Rockefeller Center had ascribed
    no value to the air rights because the "possibility they
    would be sold for value was too remote and speculative." He
    added that only one site--Rockefeller Plaza West--could
    feasibly make use of the air rights and explained that
    Rockefeller Plaza West could obtain air rights from a
    number of properties other than Rockefeller Center. Based
    on these facts, Von Ancken stated the air rights were worth
    at most $8.5 million. Marcus agreed that Rockefeller Plaza
    West was the only practical receiving site for the air rights.
    Plaintiffs responded with three declarations of their own.
    Michael Ryngaert, a professor of finance and former senior
    economist at the SEC, explained the air rights could be
    valued using methods employed to price stock options and
    concluded the omission of the air rights and the sale
    negotiations with NBC were, when combined, materially
    misleading. Mary Beach, a former senior associate director
    with the SEC, agreed with Ryngaert's assessment. Peter
    Korpacz, a real estate appraiser, valued the air rights at "at
    least $30 million" and disputed Von Ancken and Marcus's
    conclusion that a number of sites could transfer air rights
    to Rockefeller Plaza West.
    On July 10, the District Court declined to reverse its
    decision to convert the motion to dismiss into a motion for
    summary judgment. The District Court also rejected
    10
    plaintiffs' claim they had not received notice of conversion
    as required by Rule 12(b) and Rose v. Bartle, 
    871 F.2d 331
    ,
    340 (3d Cir. 1989), although without explanation. The court
    then granted defendants' motion for summary judgment on
    the air rights claim. After reviewing all the evidence, the
    court observed the highest value assigned to the air rights
    was a newspaper article's $42 million estimate. The court
    stated that even this number was small when compared to
    Rockefeller Center's $1.2 billion value and therefore
    concluded that "no reasonable trier of fact would conclude
    [the failure to mention the air rights was] a material
    omission."
    This appeal followed.
    III.
    Because the plaintiffs asserted claims under the
    Securities Exchange Act of 1934, the District Court had
    federal question jurisdiction under 15 U.S.C. S 78aa and 28
    U.S.C. S 1331. We have jurisdiction under 28 U.S.C.
    S 1291.
    IV.
    There are two issues on appeal: whether the District
    Court's conversion of the motion to dismiss was proper with
    respect to plaintiffs' General Electric negotiations claim8
    and whether the District Court correctly concluded the
    failure to disclose that the Whitehall Group would acquire
    Rockefeller Center's transferable development rights (air
    rights) was not material. Both issues are subject to plenary
    review. See Ford Motor Co. v. Summit Motor Prods. Inc., 
    930 F.2d 277
    , 284 (3d Cir. 1991) (plenary review on decision to
    convert); In re Unisys Sav. Plan Litig., 
    74 F.3d 420
    , 433 (3d
    Cir. 1996) (plenary review on a grant of summary
    judgment).
    _________________________________________________________________
    8. The propriety of conversion with respect to the air rights claims is
    not
    at issue. The District Court did not grant summary judgment on those
    claims as the result of conversion but because of defendants' motion for
    summary judgment.
    11
    A. Conversion
    1.
    Fed. R. Civ. P. 12(b) provides that if on a 12(b)(6) motion
    to dismiss
    matters outside the pleading are presented to and not
    excluded by the court, the motion shall be treated as
    one for summary judgment as provided in Rule 56, and
    all parties shall be given reasonable opportunity to
    present all material made pertinent to such a motion
    by Rule 56.
    The process of treating a motion to dismiss as a motion
    for summary judgment is known as "conversion." When
    reviewing a District Court's decision to convert a motion to
    dismiss into a motion for summary judgment, we typically
    examine three issues: first, whether the materials
    submitted require conversion; second, whether the parties
    had adequate notice of the district court's intention to
    convert; and third, if the parties did not have notice,
    whether the court's failure to provide notice was harmless
    error. See Rose v. Bartle, 
    871 F.2d 331
    (3d Cir. 1989).9
    Although the plain language of Rule 12(b) seems to
    require conversion whenever a district court considers
    materials outside the pleadings, we and other courts of
    appeals have held that a court may consider certain
    narrowly defined types of material without converting the
    motion to dismiss. In In re Burlington Coat Factory Sec.
    Litig., 
    114 F.3d 1410
    (3d Cir. 1997), we held that a court
    can consider a " `document integral to or explicitly relied
    upon in the complaint.' " Burlington , 114 F.3d at 1426
    (quoting Shaw v. Digital Equip. Corp., 
    82 F.3d 1194
    , 1220
    (1st Cir. 1996)). And in PBGC v. White Consol. Indus., 
    998 F.2d 1192
    , 1196 (3d Cir. 1993), we decided that a district
    court may examine an "undisputedly authentic document
    that a defendant attaches as an exhibit to a motion to
    dismiss if the plaintiff 's claims are based on the
    _________________________________________________________________
    9. For a comprehensive discussion of conversion, see 5A CHARLES ALAN
    WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE S 1366 (2d ed.
    1990 & Supp. 1999).
    12
    document." The rationale for these exceptions is that "the
    primary problem raised by looking to documents outside
    the complaint--lack of notice to the plaintiff--is dissipated
    `[w]here plaintiff has actual notice . . . and has relied upon
    these documents in framing the complaint.' " See
    
    Burlington, 114 F.3d at 1426
    (quoting Watterson v. Page,
    
    987 F.2d 1
    , 3-4 (1st Cir. 1993)).10
    When a District Court decides to convert a motion to
    dismiss into a motion for summary judgment, it must
    provide the parties "reasonable opportunity" to present all
    material relevant to a summary judgment motion. Fed. R.
    Civ. P. 12(b). The parties can take advantage of this
    opportunity only if they have "notice of the conversion."
    Rose v. Bartle, 
    871 F.2d 331
    , 340 (3d Cir. 1989). In Rose,
    we held that notice must be "unambiguous" and must
    "fairly apprise[ ]" the parties that the court intends to
    convert the motion. 
    Id. at 341-42.
    We acknowledged that
    notice need not be express to meet these standards but
    recommended that District Courts provide express notice
    when they intend to convert a motion to dismiss. See 
    id. at 342.11
    We also suggested that notice might be provided
    through the court's orders or at a hearing. See 
    id. at 341-
    42. In this case, plaintiffs claim they did not learn of the
    court's intention to convert the motion until it granted
    summary judgment.
    2.
    We believe the District Court did not provide adequate
    notice of conversion. The record contains no orders
    suggesting the District Court would convert the motion to
    dismiss. Nor did the District Court provide notice at the
    October 7, 1997 hearing on the motion to dismiss. Rather,
    _________________________________________________________________
    10. For an analysis of materials courts consider on 12(b)(6) motions, see
    Kurtis A. Kemper, Annotation, What Matters Not Contained in the
    Pleadings May Be Considered in Ruling on a Motion to Dismiss under Rule
    12(b)(6) of the Federal Rules of Civil Procedure or Motion for Judgment on
    the Pleadings Under Rule 12(c) Without Conversion to Motion for Summary
    Judgment, 138 A.L.R. FED. 393 (1997).
    11. We reaffirm this recommendation because express notice is easy to
    give and removes ambiguities.
    13
    at the hearing the court repeatedly stated that it was
    deciding a motion to dismiss. See Appendix at 1254 ("If
    [plaintiffs] survive the motion to dismiss . .. ."); 
    id. at 1273
    ("I am not saying I am going to deny the motion to
    dismiss."); 
    id. at 1292
    ("[I]f I .. . grant the motion to
    dismiss . . . ."); 
    id. (speaking of
    defendants' motion as "a
    motion to dismiss"); 
    id. at 1294
    (speculating on future
    proceedings if "there is a failure in the pleadings . . . .").12
    Defendants maintain that plaintiffs had constructive
    notice of conversion because they chose to submit material
    beyond the pleadings.13 We note that some courts of
    appeals have decided a party who submits material outside
    the pleadings is on constructive notice of conversion. See,
    e.g., San Pedro Hotel Co. v. City of Los Angeles, 
    159 F.3d 470
    , 477 (9th Cir. 1998) (holding that when a party
    submits matters outside the pleadings, he has notice
    conversion may occur); Collier v. City of Chicopee, 
    158 F.3d 601
    , 603 (1st Cir. 1998) (same); Laughlin v. Metropolitan
    Washington Airports Auth., 
    149 F.3d 253
    , 260-61 (4th Cir.
    1998) (same); Arnold v. Air Midwest, Inc., 
    100 F.3d 857
    ,
    859 n.2 (10th Cir. 1996) (same). But at least one other
    circuit has required express notice of conversion. See Jones
    v. Automobile Ins. Co., 
    917 F.2d 1528
    , 1532-33 (11th Cir.
    1990) (holding that District Court must provide ten days
    "express notice"). Defendants assert we adopted a
    constructive notice approach in Hilfirty v. Shipman, 
    91 F.3d 573
    (3d Cir. 1996), claiming that Hilfirty holds that a party
    who submits material outside the pleadings "is deemed to
    be on notice that the motion [to dismiss] will be converted."
    We disagree. Hilfirty explicitly states that the "primary
    _________________________________________________________________
    12. We also note that defendants not only failed to suggest conversion
    was required but instead stated the court was deciding a motion to
    dismiss. See 
    id. at 1272
    ("I am quoting the position on a motion to
    dismiss."). Defendants argue that statements made at the October 7
    hearing are irrelevant to the notice issue because plaintiffs submitted
    material beyond the pleadings only after the hearing. But both parties
    submitted material beyond the pleadings before October 7; defendants
    alone submitted twenty-two exhibits totaling more than seven hundred
    pages prior to the hearing.
    13. For a discussion of these varying approaches, see 2 JAMES WM. MOORE
    ET AL., MOORE'S FEDERAL PRACTICE P 12.34 (3d ed. 1999).
    14
    reason" notice was deemed adequate was that some of the
    motions to dismiss had been framed in the alternative as
    motions for summary judgment. 
    Hilfirty, 91 F.3d at 578-79
    .
    Because defendants' motion to dismiss here was not framed
    in the alternative as a motion for summary judgment, we
    think Hilfirty is inapposite. In addition, the District Court in
    Hilfirty did not expressly and repeatedly state it was
    deciding a motion to dismiss.
    3.
    A district court's failure to provide notice compels
    reversal unless the failure is harmless error. See Rose at
    342. Failure to provide notice is harmless error if the
    plaintiff 's complaint would not have survived a motion to
    dismiss. See 
    id. In this
    case the motion to dismiss must be
    informed by the pleading standards of the Private Securities
    Litigation Reform Act, 15 U.S.C. S 78u-4 et seq. In the past,
    we have applied the harmless error analysis where we
    determined the parties did not have notice of conversion.
    See Rose v. Bartle, 
    871 F.2d 331
    (3d Cir. 1989), Hancock
    Industries v. Schaeffer, 
    811 F.2d 225
    (3d Cir. 1987); Davis
    Elliott International, Inc. v. Pan American Container Corp.,
    
    705 F.2d 705
    (3d Cir. 1983). In each case, we were able to
    determine the propriety of dismissal by applying
    established law to relatively straightforward allegations in
    the complaint. Although material beyond the pleadings had
    been submitted, it does not appear to have been
    voluminous or to have raised complex issues of pleading.
    When appropriate, a court of appeals may decide a
    motion to dismiss even after conversion. But in cases like
    this one, involving complex principles of law and
    voluminous materials (an 1800-page Appendix), the District
    Court, which is familiar with the record, is better suited for
    this task in the first instance. Furthermore, the motion to
    dismiss here involves interpreting a recently-enacted law--
    the Private Securities Litigation Reform Act--whose scope is
    still being defined. In addition, the parties briefed and
    argued their cases prior to our recent decision in In re
    Advanta Corporation Securities Litigation, #6D 6D6D# F.3d ___ (3d
    Cir. 1999), setting forth the pleading standard under
    section 78u-4(b)(2) of the Reform Act. We believe the wiser
    15
    course is to vacate the grant of summary judgment on this
    claim and remand so the parties have the opportunity to
    frame their arguments in light of this opinion and Advanta.
    For these reasons, we will vacate and remand the District
    Court's grant of summary judgment on plaintiffs' General
    Electric sale negotiations claim.
    B. Transferable Development Rights (Air Rights)
    Plaintiffs assert that the failure to disclose the existence
    and value of the air rights was a "material omission"
    violating Rules 10b-5 and 14a-9.14 An omitted fact is
    immaterial unless "there is a substantial likelihood that a
    reasonable shareholder would consider it important in
    deciding how to vote," TSC Indus., Inc. v. Northway, Inc.,
    
    426 U.S. 438
    , 449 (1976), and unless its "disclosure . . .
    would have been viewed by the reasonable shareholder as
    having significantly altered the `total mix' of information
    made available." 
    Id. In In
    re Burlington Coat Factory Sec.
    Litig., 
    114 F.3d 1410
    , 1427 (3d Cir. 1997), we held an
    omission is immaterial as a matter of law if the facts
    omitted "would have had no more than a negligible impact
    on a reasonable investor's prediction of the firm's future
    earnings." In determining the effect of an omission, we
    examine whether the information omitted is speculative or
    unreliable, see In re Craftmatic Sec. Litig., 
    890 F.2d 628
    ,
    644 (3d Cir. 1989), or if it is contingent. See Lewis v.
    _________________________________________________________________
    14. Rule 10b-5, promulgated by the SEC underS 10(b), forbids the
    omission of "a material fact necessary in order to make . . . statements
    made . . . not misleading." In order to state a 10b-5 claim based on the
    omission of a material fact, a plaintiff must show"that the defendant i)
    made . . . omissions; ii) of material fact; iii) with scienter; iv) in
    connection with the purchase or sale of securities; v) upon which the
    plaintiff relied; and vi) that reliance proximately caused the plaintiff
    's
    injury." In re Phillips Petroleum Sec. Litig. , 
    881 F.2d 1236
    , 1244 (3d
    Cir.
    1989).
    Rule 14a-9, promulgated by the SEC under S 14(a), prohibits the
    solicitation of proxies by means of a proxy statement that contains a
    statement that "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."
    16
    Chrysler Corp., 
    949 F.2d 644
    , 652-53 (3d Cir. 1991). These
    considerations are especially relevant when the information
    omitted is "soft" information, a term which includes
    statements such as estimates and appraisals. See
    
    Craftmatic, 890 F.2d at 642-43
    .
    Plaintiffs claim the District Court erred in determining
    the materiality of the air rights by comparing their value to
    the value of Rockefeller Center. Asserting that knowledge of
    the air rights and their value would have been important to
    a reasonable shareholder's decision on whether to vote for
    the merger, plaintiffs note their expert appraised the air
    rights at "at least $30 million" and that defendants had
    promised to pay shareholders $308 million to complete the
    merger. From these facts they contend a reasonable
    shareholder would have determined that defendants should
    have paid shareholders $30 million more. (This $30 million
    breaks down to nearly eighty cents per share--roughly ten
    percent of price proposed by the Whitehall Group.)
    Defendants offer three reasons we should affirm the
    District Court's grant of summary judgment on the air
    rights issue. First, they claim that Rockefeller Plaza West--
    the only practical receiving site for the air rights--has
    recently been developed without any air rights, which in
    their eyes "prove[s] conclusively" the air rights never had
    any value. Second, they contend they did disclose the
    Whitehall Group would acquire the air rights through the
    acquisition of Rockefeller Center Properties, Inc.;
    specifically, that Rockefeller Center Properties, Inc.
    documents filed with the SEC disclosed that Rockefeller
    Center had air rights and the Proxy Statement disclosed
    that the Whitehall Group would acquire Rockefeller Center
    through the acquisition. They contend these documents
    disclosed the impending transfer of the air rights because
    "Rockefeller Center" "naturally includes" the air rights
    associated with it. Finally, defendants maintain the air
    rights were immaterial because their sale was contingent
    and speculative and even the $30 million value proffered by
    plaintiffs was negligible compared to Rockefeller Center's
    $1.2 billion value and would have played no role in the
    reasonable shareholder's voting decision.
    17
    We need not decide whether $30 million is material when
    compared either to the $1.2 billion value of Rockefeller
    Center or to the $308 million plaintiffs received from the
    Whitehall Group because plaintiffs have provided no
    evidence the air rights would be sold, that the Whitehall
    Group planned to sell them or that one of the possible
    receiving sites had expressed any interest in acquiring them
    at any point in the future. Without such evidence, the value
    shareholders (as opposed to appraisers) would attach to the
    air rights is contingent and speculative, which weighs
    against a finding of materiality. In addition, full disclosure
    of the air rights would have mentioned not only their
    possible value but also the limited prospect they would ever
    be sold. For these reasons, we do not think disclosure of
    the air rights would have been important to a reasonable
    shareholder's voting decision. Therefore we will affirm the
    District Court's grant of summary judgment on plaintiffs'
    air rights claims.
    V.
    For these reasons, we will vacate and remand the District
    Court's grant of summary judgment on plaintiffs' General
    Electric sale negotiations claim but will affirm its grant of
    summary judgment on their air rights claim. We will
    remand for proceedings consistent with this opinion.
    18
    NYGAARD, Circuit Judge, concurring and dissenting.
    I agree that the District Court's grant of summary
    judgment was proper as to plaintiffs' air rights claims, but
    for reasons different from those relied on by the majority. I
    also believe that although the District Court erred by
    converting defendant's motion to dismiss into one for
    summary judgment, that error was harmless.
    A. Air Rights
    It is undisputed that the total appraised value of
    Rockefeller Center was $1.25 billion. It is also undisputed
    that 38.2 million shares were transferred during the buyout
    merger and that these shares were transferred at a price of
    $8.00 per share. Further, the Record shows that, viewing
    the proffered evidence in the light most favorable to the
    shareholders, the highest possible value for the air rights
    was $42 million. By the following calculations, its"true" per
    share values result:1
    $1.25 billion #45# 38.2 million shares = $32.72 per share
    $1.25 billion + $42 million = $1.292 billion
    $1.292 billion #45# 38.2 million shares = $33.82 per share
    Taking these figures and using basic ratios and
    proportions, it is clear that the resulting increase in share
    value is approximately 3.25%:
    _________________________________________________________________
    1. Although the shareholders do not dispute the $1.25 billion or the $42
    million figures, they argue that the appropriate comparison for
    materiality is the potential value of the air rights if the shareholders'
    proposed minimum value of $30 million was incorporated into the per
    share value. Thus, they assert that they would not have considered
    $8.00 per share to be a "fair" amount if they knew that the $1.2 billion
    appraisal did not consider the potential windfall of transferring the air
    rights. They suggest that the undeveloped air rights add at least an
    additional $0.78 to the per share value and this 10% increase in value
    is material. However, the shareholders' argument does not take into
    consideration that the $8.00 per share figure does not represent the
    "true" value of Rockefeller Center. Instead, it represents the distressed
    or
    fire sale value. As such, the proper measure of value cannot be
    determined by merely tacking on a hypothetical value of the air rights to
    the $8.00 per share value.
    19
    $32.72/share #45# $8.00/share = $33.82/share #45# X
    X = $8.26/share
    $8.26/share is a value increase of approximately
    3.25% over the base value of $8.00/share.
    A 3.25% increase in value is immaterial. For this reason, I
    conclude that the District Court properly granted summary
    judgment.
    Moreover, the shareholders were placed on notice that
    the air rights were transferable as part of the Buyout
    Merger. The 10k annual reports, which were incorporated
    by reference into the proxy statements, disclosed that the
    air rights were allocable to Rockefeller Center under New
    York law and that under the RCPI mortgages the
    partnership owners reserved the right to transfer these
    rights. See JA 950 (stating that "there is allocable to the
    Property the right to develop up to approximately 2.0
    million square feet of floor areas" that "may be transferred
    to other properties or, with the approval of the New York
    City Landmarks Preservation Commission, used to
    construct additional floor area within the Property," and
    advising that "[t]he Borrower has reserved the right to
    transfer these rights" and "all of the Borrower's rights to the
    air space above the Music Hall, together with easements for
    support, operations and access." The 10k annual report
    also reveals that "as part of the settlement of a lawsuit,
    100,000 square feet of these [air] rights were added to the
    Mortgage."). I therefore conclude that the possible transfer
    of the air rights was properly disclosed to the shareholders.
    B. Conversion of the Motion to Dismiss Plaintiffs' General
    Electric Negotiations Claim
    The majority has done a fine analysis, and I agree that
    the District Court improperly converted the motion by
    failing to provide the plaintiffs with adequate notice of the
    conversion. I do not believe, however, that the proper
    mandate is to vacate and remand. Rather, I would inquire
    whether the conversion was harmless error by determining
    whether the plaintiffs' claims could have been dismissed
    under Rule 12(b)(6). We may affirm a judgment"if it
    appears that there is no set of facts on which plaintiffs
    could possibly recover." Rose v. Bartle, 
    871 F.2d 331
    , 342
    20
    (3d Cir. 1989) (citing Hancock Indus. v. Schaeffer, 
    811 F.2d 225
    , 229 (3d Cir. 1987)).
    It is undisputed that the following documents were
    submitted by the parties either to support, or oppose, the
    motion to dismiss the GE negotiations claim:
    By the shareholders:
    (1) an affidavit of Pamela S. Tikellis authenticating
    copies of documents incorporated into the proxy
    statement and amended complaint including RCPI's
    annual reports for the years 1995 and 1996, filed on
    SEC Form 10-k
    (2) three filings with   the United States Bankruptcy
    Court for the Southern   District of New York (the
    shareholders requested   that the District Court take
    judicial notice of the   bankruptcy court filings)
    (3) two publicly filed letters from the New York City
    Planning Commission which was obtained under the
    Freedom of Information Act
    (4) articles from the New York Times dated September
    10, 1995 and September 12, 1995
    (5) a Form 13D/A filed with the SEC by defendant
    Goldman Sachs & Co. on May 3, 1996 that was relied
    upon by the shareholders in their Amended Complaint
    (6) the transcript of a Bankruptcy Court hearing
    concerning the defaulted owners' Chapter 11 plan
    By the Defendants:
    (1) two affidavits of Robert Payson authenticating
    copies of a publicly filed Proxy Statement and other
    SEC filings which the shareholders relied on for their
    claims
    (2) excerpts from the defaulting owners' Second
    Amended Joint Plan of Reorganization filed in the
    bankruptcy court on February 8, 1996
    (3) copies of new articles and other documents
    mentioned in the shareholders complaint
    21
    After receiving these various affidavits and other
    538documents, the District Court converted defendant's
    12(b)(6) motion to dismiss to a Rule 56 motion for summary
    judgment.
    The general rule is that "a district court ruling on a
    motion to dismiss may not consider matter extraneous to
    the pleadings." In re Burlington Coat Factory Sec. Litig, 
    114 F.3d 1410
    , 1426 (3d Cir. 1997); see also 5A Charles Alan
    Wright & Arthur Miller, Federal Practice and Procedure
    S 1366, at 93 (West 1990) (observing that Rule 12(b)(6)
    commands a court to convert a motion to dismiss into a
    motion for summary judgment "[o]nce the court decided to
    accept matters outside the pleading"). However, we have
    carved out some exceptions to this general rule. For
    example, 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.' "
    Burlington 
    Coat, 114 F.3d at 1426
    (quoting Shaw v. Digital
    Equipment Corp., 
    82 F.3d 1194
    , 1220 (3d Cir. 1996)). Thus,
    when an Amended Complaint quotes from certain press
    releases and public announcements, we may consider the
    entire text of those public statements. See 
    Id. (commenting that
    "plaintiffs cannot prevent a court from looking at the
    texts of the documents on which its claim is based by
    failing to attach or explicitly cite them"); In re
    Westinghouse, 
    90 F.3d 696
    , 707 (3d Cir. 1996).
    We have also allowed a court to consider matters of
    public record when ruling on a motion to dismiss. See
    Pension Benefit Guar. Corp. v. White Consol. Indus., Inc.,
    
    998 F.2d 1192
    , 1196 (3d Cir. 1993). For purposes of a
    motion to dismiss, however, matters of public record do not
    include all documents which may be accessible to the
    public. Rather, it has been limited to the following
    documents: criminal case dispositions such as convictions
    or mistrials, letter decision of government agencies and
    published reports of administrative bodies. See 
    id. at 1197
    (citations omitted). Specifically, we have excluded from our
    definition of public record, for purposes of a motion to
    dismiss, material that "might be subject to disclosure under
    the [Freedom of Information Act]." 
    Id. The reasoning
    for
    distinguishing between other recognized public documents
    22
    and information obtained through the Freedom of
    Information Act is that the public does not have unqualified
    access to these documents; potential obstacles exist. First,
    one must submit a request for the information to a
    Disclosure Officer. See 29 C.F.R. #8E8E # 2603.32-2603.33.
    Second, the request may be denied if the company or entity
    considers the information non-disclosable. See 
    id. SS 2603.37-2603.38.
    Third, many categories of information
    may not be given to the public. See id.SS 2603.17-2603.19,
    2603.21. Finally, a requestor may appeal a denial under
    the Freedom of Information Act. See S 2603.39. Thus, the
    two letters submitted by the shareholders that involved
    correspondence from the New York City Planning
    Commission and that were obtained through the Freedom
    of Information Act cannot be considered on a motion to
    dismiss.
    First, I agree with the approach of the Courts of Appeal
    for the Second and Fifth Circuits and would allow the
    District Court to take judicial notice of all public disclosure
    documents which are either required to be filed with the
    SEC or are actually filed with the SEC. See Kramer v. Time
    Warner, Inc., 
    937 F.2d 767
    , 774 (2d Cir. 1991); Lovelace v.
    Software Spectrum Inc., 
    78 F.3d 1015
    , 1018 (5th Cir. 1996).
    As the Court of Appeals for the Second Circuit said:
    the documents are required by law to be filed with the
    SEC, and no serious questions as to their authenticity
    can exist. Second, the documents are the very
    documents that are alleged to contain the various
    misrepresentations or omissions and are relevant not
    to prove the truth of their contents but only to
    determine what the documents stated. Third, a plaintiff
    whose complaint alleges that such documents are
    legally deficient can hardly show prejudice resulting
    from a court's studying of the documents
    . . .
    This of course includes related documents that bear on
    the adequacy of the disclosure as well as documents
    actually alleged to contain inadequate or misleading
    statements. We stress that our holding relates to public
    disclosure documents required by law to be filed, and
    23
    actually filed, with the SEC, and not to other forms of
    disclosure such as press releases or announcements at
    shareholder meetings.
    
    Kramer, 937 F.2d at 774
    . This approach is consistent with
    our practice of allowing consideration of indisputably
    authentic documents which serve as the basis for plaintiffs'
    complaint. See Pension Benefit Guar. 
    Corp., 998 F.2d at 1196-97
    (holding that "a court may consider an
    undisputably authentic document that a defendant
    attaches as an exhibit to a motion to dismiss if the
    plaintiff 's claims are based on the document" because
    "[w]hen a complaint relies on a document . . . the plaintiff
    obviously is on notice of the contents of the document, and
    the need for a chance to refute evidence is greatly
    diminished").
    I conclude that the District Court could properly consider
    the authenticated copies of SEC filings submitted by both
    the shareholders and the defendants, which relate to or are
    the basis for the shareholders' complaint, on a motion to
    dismiss. In sum, the documents which are properly
    considered on a motion to dismiss are:
    (1) an affidavit of Pamela S. Tikellis authenticating
    copies of documents incorporated into the proxy
    statement and amended complaint including RCPI's
    annual reports for the years 1995 and 1996, filed on
    SEC Form 10-k;
    (2) articles from the New York Times dated September
    12, 1995 and referenced in first Consolidated Amended
    complaint;
    (3) a Form 13D/A filed with the SEC by defendant
    Goldman Sachs & Co. on May 3, 1996 that was relied
    upon by the shareholders in their Amended Complaint;
    (4) two affidavits of Robert Payson authenticating
    copies of publicly filed Proxy Statement and other SEC
    filings which the shareholders relied on for their
    claims;
    (5) copies of news articles and other documents
    mentioned in the shareholders complaint.
    24
    Looking at what can be properly considered on a motion to
    dismiss, the District Court's error of conversion is harmless
    because these documents support a dismissal of the
    complaint for failure to state a claim.
    949A determination of materiality "requires delicate
    assessments of the inferences a `reasonable shareholder'
    would draw from a given set of facts and the significance of
    those inferences to him." TSC Indus., Inc. v. Northway, Inc.,
    
    426 U.S. 438
    , 450, 
    96 S. Ct. 2126
    , 2133 (1976); see
    Shapiro v. UJB Fin. Corp., 
    964 F.2d 272
    , 281 n.11 (3d Cir.
    1992). Thus, materiality is often a question for a jury. See
    
    TSC, 426 U.S. at 450
    , 96 S. Ct. at 2133. However, when a
    complaint alleging securities fraud contains claims of
    omissions or misstatements that are "so obviously
    unimportant to an investor that reasonable minds cannot
    differ on the question of materiality," we may deem the
    misrepresentations and omissions immaterial as a matter of
    law. In re 
    Westinghouse, 90 F.3d at 710
    ; see In re
    Craftmatic Sec. Litig., 
    890 F.2d 628
    , 641 (3d Cir. 1989).
    An omission or misrepresentation is material if"there is
    a substantial likelihood that the disclosure would have
    been viewed by the reasonable investor as having
    `significantly altered the "total mix" of information' available
    to that investor." In re 
    Westinghouse, 90 F.3d at 714
    (quoting 
    Shapiro, 964 F.2d at 281
    n.11). Thus, the
    shareholders need not prove that disclosure of the allegedly
    omitted facts would have changed their vote regarding the
    buy-out merger. See 
    TSC, 426 U.S. at 449
    , 96 S. Ct. at
    2132; see also Virginia Bankshares, Inc. v. Sandberg, 
    501 U.S. 1083
    , 1097-98, 
    111 S. Ct. 2749
    , 2760-61 (1991).
    Further, although information may be relevant and an
    investor may want to know that information, it may be "of
    such `dubious significance' as to be `trivial,' and `hardly
    conducive to informed decision making,' so that to
    reasonable shareholders, such omission must be
    immaterial as a matter of law." In re 
    Westinghouse, 90 F.3d at 714
    (quoting In re Westinghouse Securities Litigation, 
    832 F. Supp. 948
    , 972 (W.D. Pa. 1993) (other quotations
    omitted)). Additionally, we have cautioned that when
    plaintiffs allege a claim akin to "failing to predict the future"
    it is often "difficult to ascertain whether the reasonable
    25
    investor would have considered the omitted information
    significant at the time" especially "where an event is
    contingent or speculative in nature." Shapiro , 964 F.2d at
    283. However, these "opinions, predictions and other
    forward-looking statements are not per se inactionable." In
    re Donald J. Trump Sec. Litig, 
    7 F.3d 357
    , 368 (3d Cir.
    1993). Materiality of contingent or speculative information
    or events depends on "a balancing of both the indicated
    probability that the event will occur and the anticipated
    magnitude of the event in light of the totality of the
    company activity." Basic, Inc. v. Levinson , 
    485 U.S. 224
    ,
    232 (1988)(citations omitted). "If the speaker does not
    genuinely and reasonably believe the opinions, then
    plaintiffs may support a claim for misrepresentation." 
    Id. In light
    of our recent opinion in In re Advanta Securities
    Litigation, No. 98-1846, 
    1999 WL 395997
    (3d Cir. June 17,
    1999), plaintiffs alleging a claim under 10b-5 must" `state
    with particularity facts giving rise to a strong inference' of
    scienter." 
    Id. at n.5
    (quoting 15 U.S.C.S 78u-4(b)(2) (West
    Supp. 1999)). Although this pleading standard was not
    clear at the time plaintiffs filed their complaint, I do not
    believe Advanta requires a remand because plaintiffs'
    claims concerning the GE negotiations cannot withstand a
    motion to dismiss even when the more lenient requirements
    of Federal Rule of Civil Procedure 9(b) are applied. Further,
    unlike my colleagues, I do not believe that the"complex
    principles of law and voluminous materials" render the
    District Court "better suited" to determine whether
    plaintiffs' claims survive a motion to dismiss. I suggest the
    record supports the conclusion that the District Court's
    conversion of the motion to dismiss was harmless error.
    On appeal, the shareholders raise three main arguments
    to support their contention that the District Court erred by
    granting summary judgment as to the shareholders' claims
    that the Board failed to disclose negotiations involving the
    sale of twenty percent of Rockefeller Center for $440
    million. I will address each argument in turn.
    1. Materiality of the Sale Negotiations was a question for
    the jury
    The shareholders argue that they "had a number of
    choices when defendants solicited their proxies."
    26
    Shareholders' Br. at 35. This is a classic example of "fraud
    by hindsight." As the District Court observed, none of the
    facts presented by the shareholders, indeed, no set of facts,
    support the shareholders' allegations that the Investor
    Group did not disclose material negotiations for the sale of
    a part of Rockefeller Center before the Buy-out Merger vote.
    None of the newspaper articles reveal that firm negotiations
    were underway. Rather, the articles show that at some
    point everything under the sun was being negotiated with
    numerous corporate entities to salvage the financial status
    of Rockefeller Center. Thus, the sale of Rockefeller Center
    was so speculative that it was immaterial as a matter of
    law.
    2. The Buy-Out Group's Uncorrected Denial of any Plan to
    Sell Part of Rockefeller Center in the Next Two Years
    The shareholders also contend that Goldman Sachs and
    the defendants had a duty to disclose that they were
    contemplating a sale to GE/NBC especially in light of
    Goldman Sachs's statement that it did not have a plan "to
    sell any or all of the twelve buildings [at Rockefeller Center]
    in the next few years." The District Court correctly decided
    that non-disclosure of potential negotiations was
    immaterial as a matter of law. It is well settled, even
    mandated by SEC regulations, that a company is barred
    from including in proxy materials any tentative negotiations
    or plans, especially when those plans are only speculative.
    Further, this comment by Goldman Sachs cannot be
    attributed to the Investor Group. This statement was made
    on or before September 19, 1995, approximately ten to
    thirteen days before the Investor Group was formed. A 125.
    Therefore, the Investor Group and other defendants did not
    have a duty to update the statements originally made by
    Goldman Sachs.
    3. A Sale is not "The Economic Equivalent" of a "Credit
    Lease Financing Agreement"
    The District Court concluded that:
    GE's interest in RCPI and in Rockefeller Center was
    well known. GE was a member of one of the three
    major groups bidding on RCPI in the fall of 1995, and
    GE's involvement in the bidding process was well
    27
    documented in the Proxy Statement. Defendants
    specifically disclosed the agreement between GE, the
    Zell Group, and RCPI to arrange a `lease financing'
    based on GE's credit rating.
    Charal Invest. Co. v. Rockefeller, Civ. A. No. 96-543-RRM,
    slip. op. at 16 (D. Del. Dec. 10, 1997). The shareholders
    urge that there is a critical distinction between a lease
    financing agreement and a sale to GE/NBC. According to
    the shareholders, a credit lease financing agreement was
    subject to several conditions and "[t]he Proxy Statement . . .
    gave no indication that the cash which could be obtained
    from the credit lease financing would be adequate for RCPI
    to own and operate Rockefeller Center." Shareholders Br. at
    41. The shareholders submit that a sale, in contrast,
    "would have provided an immediate source of cash to RCPI
    without increasing the REIT's debt." 
    Id. at 42.
    To support
    this argument, the shareholders take a passage from a
    Bankruptcy Court proceeding out of context and attempt to
    persuade this court that the statement, "The economics are
    so different now we ought to look at this from a different
    point of view" allows the "natural inference" that had the
    potential sale to GE/NBC been disclosed, "the cash
    generated by the sale would have sufficed for RCPI to
    assume control of Rockefeller Center without securing
    additional capital form its shareholders or other sources."
    
    Id. at 43.
    A full reading of the Bankruptcy proceeding,
    however, shows that this statement was made in
    connection to whether the Debtors' bankruptcy disclosure
    statement to its creditors needed updating.2
    Moreover, the proxy materials clearly reveal that GE was
    interested in both RCPI and Rockefeller Center. The record
    shows that GE was part of the Zell Group. Therefore, if
    anyone would be aware of the possible sale of part of
    Rockefeller Center to GE, it would be GE. However, the Zell
    Group did not make a bid higher than the $8.00-$8.75 per
    share bid made by the Investor Group. As such, the District
    Court properly concluded that "no reasonable shareholder
    _________________________________________________________________
    2. We can consider the full text of the Bankruptcy proceeding in deciding
    the motion to dismiss because the plaintiffs have relied on various
    excerpts from the proceeding in their complaint.
    28
    would consider the potential sale of part of Rockefeller
    Center to be important in deciding how to vote." Charal
    Investment Co., Civ. A. No. 96-543-RRM, at 17.
    Additionally, the shareholders have not alleged that the
    refinancing agreements with Goldman Sachs were either
    fraudulent or illegitimate in any manner. Therefore, I do not
    believe that remanding the case to provide the parties an
    "opportunity to frame their arguments in light of. . .
    Advanta" is the most efficient, or even a necessary course.
    I would affirm.
    A True Copy:
    Teste:
    Clerk of the United States Court of Appeals
    for the Third Circuit
    29
    

Document Info

Docket Number: 98-5394

Citation Numbers: 184 F.3d 280

Filed Date: 7/21/1999

Precedential Status: Precedential

Modified Date: 1/12/2023

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