In re Rockefeller Ctr Prop. Inc. Securities Litigation, 98-5394

• Decision Date: 19 July 1999
• Docket Number: Nos. 98-5394,No. 98-5395,No. 98-5394,98-5394,98-5395,s. 98-5394
• Citation: 184 F.3d 280
• Parties: (3rd Cir. 1999) IN RE: ROCKEFELLER CENTER PROPERTIES, INC. SECURITIES LITIGATION FRANK DEBORA; WILSON WHITE; STANLEY LLOYD KAUFMAN, JR.; JOSEPH GROSS, Appellants atv. 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& 98-5395
• Court: U.S. Court of Appeals — Third Circuit

Page 280

184 F.3d 280 (3rd Cir. 1999)

IN RE: ROCKEFELLER CENTER PROPERTIES, INC. SECURITIES LITIGATION

FRANK DEBORA; WILSON WHITE; STANLEY LLOYD KAUFMAN, JR.; JOSEPH GROSS, Appellants at No. 98-5394 v. 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

Nos. 98-5394 & 98-5395

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

Argued March 10, 1999

Decided July 19, 1999

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) [Copyrighted Material Omitted]

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

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

Before: MANSMANN, SCIRICA and NYGAARD, Circuit Judges

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.

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 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 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., 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 lease financing 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...