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,
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.
Argued: December 11, 2018
from the United States District Court for the District of
Maryland, at Baltimore. Catherine C. Blake, District Judge.
Jeffrey Simon Abraham, ABRAHAM, FRUCHTER & TWERSKY, LLP,
New York, New York, for Appellants.
Stewart Webb, Jr., VENABLE LLP, Baltimore, Maryland, for
B. Isbister, TYDINGS & ROSENBERG, LLP, Baltimore,
Maryland, for Appellants.
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
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
NIEMEYER, DUNCAN, and QUATTLEBAUM, Circuit Judges.
QUATTLEBAUM, Circuit Judge:
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.
AFIN's merger stems from their relationship with a
business known as AR Global Investments LLC ("AR
Global"). 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. 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
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.
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.
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.
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 RCA shareholders would
receive a combination of cash and AFIN stock, estimated to be
$10.26, in exchange for each of their RCA shares.
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
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.
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.
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 ...