09-3971-cv
First New York Securities LLC v. United Rentals Inc.




                                UNITED STATES COURT OF APPEALS
                                   FOR THE SECOND CIRCUIT

                                     SUMMARY ORDER
Rulings by summary order do not have precedential effect. Citation to a summary order filed on or after January
1, 2007, is permitted and is governed by Federal Rule of Appellate Procedure 32.1 and this court’s Local Rule 32.1.1.
When citing a summary order in a document filed with this court, a party must cite either the Federal Appendix
or an electronic database (with the notation “summary order”). A party citing a summary order must serve a copy
of it on any party not represented by counsel.

        At a stated term of the United States Court of Appeals for the Second Circuit, held at the
Daniel Patrick Moynihan United States Courthouse, 500 Pearl Street, in the City of New York,
on the 30th day of August, two thousand ten.

PRESENT:
            ROBERT A. KATZMANN,
            PETER W. HALL,
                        Circuit Judges,
            PAUL G. GARDEPHE,*
                        District Judge.
______________________________________________

FIRST NEW YORK SECURITIES LLC, o/b/o themselves and all others similarly situated,
OMNI PARTNERS LLP, o/b/o themselves and all others similarly situated, GLAZER
CAPITAL MANAGEMENT, LP, GLAZER OFFSHORE FUND, LTD, BROWNSTONE
ASSET MANAGEMENT, L.P., and RAVEN CREDIT OPPORTUNITIES MASTER FUND,
LTD.,
                             Plaintiffs-Appellants,

GLAZER FUNDS, VINCENT DECICCO, Ind & o/b/o themselves and all others similarly
situated,
                          Plaintiffs,

                           v.                                                    No. 09-3971-cv

        *
          The Honorable Paul G. Gardephe of the United States District Court for the Southern
District of New York, sitting by designation.

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UNITED RENTALS INC, ROGER E. SCHWED, MICHAEL J. KNEELAND,
                           Defendants-Appellees,

WAYLAND R. HICKS, MARTIN E. WELCH, BRIAN D. MCAULEY, GERALD TSAI JR.,
MICHAEL S. GROSS, LEON D. BLACK, HOWARD L. CLARK JR., SINGLETON
MCALLISTER, JOHN S. MCKINNEY, JENNE K. BRITELL, KEITH WIMBUSH, JASON D.
PAPASTAVROU, RAM HOLDINGS, CERBERUS, STEPHEN F. MAYER, STEPHEN M.
FEINBERG, CERBERUS ASSOC LLC, CERBERUS PARTNERS,
                              Defendants.
______________________________________________



FOR PLAINTIFFS-APPELLANTS:                   ANDREW J. ENTWISTLE, Entwistle & Cappucci
                                             LLP, New York, NY.


FOR DEFENDANTS-APPELLEES:                           ALAN R. FRIEDMAN, Kramer Levin
                                                    Naftalis & Frankel LLP, New York, NY.


       Appeal from a judgment of the United States District Court for the District of

Connecticut (Hall, J.). UPON DUE CONSIDERATION, it is hereby ORDERED,

ADJUDGED, AND DECREED, that the judgment of the district court is AFFIRMED.

       This appeal arises out of securities fraud claims stemming from the failed 2007 merger

between United Rentals, Inc. (“URI”) and RAM Holdings, Inc. and RAM Acquisition Corp.

(together, “RAM”), affiliates of Cerberus Capital Partners, L.P. (“Cerberus”). At the outset of

the bidding process, in April 2007, URI’s common stock jumped from $27.55 per share to

$32.36 per share upon news that URI was exploring strategic alternatives. After entertaining at

least one other potential bidder, URI and RAM signed a merger agreement in July 2007. Over

the next few months, as the parties worked to close the transaction, economic conditions,

particularly in the credit and debt markets, were less than optimal. In late August 2007, RAM


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contacted URI’s bankers and stated that due to deterioration in the credit markets, it wanted to

renegotiate the purchase price. URI expressed reluctance at the time; one week later, URI

replied and flatly refused to re-open the negotiations. On November 14 2007, Cerberus informed

URI that RAM was repudiating the merger agreement; URI stock opened the day at $34.37 and

closed at $23.50.

       Plaintiffs-appellants are investors who purchased URI common stock during the class

period commencing August 30, 2007 and ending November 14, 2007. They allege that URI had

a clear duty to disclose that RAM was seeking to renegotiate the purchase price and that there

was a high likelihood that the deal would fall apart. They claim that by making certain public

pronouncements that gave the impression that the transaction would close as originally

negotiated—including, inter alia, filing a preliminary proxy, issuing a press release announcing

a special meeting of shareholders, disseminating proxy materials, and issuing a press release and

financial statements at the end of the quarter—URI made material misstatements in violation of

federal securities law. They further claim that in failing to inform the public of these events,

URI acted with scienter by deliberately and improperly concealing the clear risks affecting the

deal in order to stabilize the market price of its stock. We assume the parties’ familiarity with

the remaining facts, procedural context, and specification of appellate issues.

       We review de novo a district court’s ruling on a motion to dismiss a complaint pursuant

to Federal Rule of Civil Procedure 12(b)(6). See Teamsters Local 445 Freight Div. Pension

Fund v. Dynex Capital, Inc., 

, 194 (2d Cir. 2008). In considering a motion to

dismiss a section 10(b) action, we accept all factual allegations in the complaint as true and must



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consider the complaint in its entirety. See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 

, 322 (2007). The district court twice dismissed plaintiffs-appellants’ complaints on the basis

that they failed to allege scienter adequately, finding that whatever inferences could be drawn

regarding the failure to comply with a clear duty to disclose, “on balance, the court is not

persuaded that the inference of scienter is ‘at least as compelling as any opposing inference of

nonfraudulent intent.’” First New York Sec., L.L.C. v. United Rentals, Inc., 

,

276 (D. Conn. 2009) (quoting Teamsters Local 

). We agree and therefore

affirm.

          Under the Private Securities Litigation Reform Act of 1995 (“PSLRA”), where proof of

scienter is a required element, a complaint must “state with particularity facts giving rise to a

strong inference that the defendant acted with the required state of mind.” 15 U.S.C. §

78u-4(b)(2). Under Section 10(b) and Rule 10b-5, the required state of mind is “scienter” or an

intent “to deceive, manipulate, or defraud.” 

. To have a “strong

inference” of scienter, as required by the PSLRA, the inference must be such that a “reasonable

person would deem the inference of scienter cogent and at least as compelling as any opposing

inference one could draw from the facts alleged.” 

see also Slayton v. Am. Express

Co., 

, 766 (2d Cir. 2010). In this case, URI’s failure to disclose certain information

is not actionable unless it intended to defraud or mislead by withholding information that it knew

it had a clear duty to disclose. Having carefully reviewed the parties’ arguments and the record

on appeal, we conclude that even though plaintiffs-appellants put forth a plausible interpretation

of URI’s actions, that interpretation is belied by many other factors—and by certain actions



                                                  4
taken by RAM and Cerberus—which persuade us that it is more likely than not the case that URI

believed the deal would close as originally negotiated.

       For example, at the August 29, 2007 meeting during which RAM first mentioned its

desire to renegotiate the terms of the agreement, URI’s representative stated that URI did not

think that RAM had a “walkaway” and that URI believed it had the right to demand specific

performance. The representative also specifically asked RAM if it was going to repudiate the

contract; RAM replied in the negative. Reasonable and persuasive inferences one may draw

from this evidence are that URI did not believe that: (1) the deal was seriously threatened

because it could always demand specific performance;1 and (2) RAM intended to repudiate the

agreement. Moreover, in a letter from RAM to URI two days later, RAM made no effort to

clarify its position regarding its alleged threat to repudiate the agreement. Additionally, there

were no substantive or other renegotiation discussions between RAM and URI between August

29th and November 14th. Although plaintiffs-appellants point to other events in the credit

markets—e.g., the demise of the Cerberus-ACS transaction—they do not argue that RAM

approached URI again or made any other threats regarding the closing of the transaction. In

point of fact, RAM and URI worked diligently to close the transaction by, inter alia, initiating

tender offers for URI’s debt securities and conducting a “road show” to place $2.5 billion in

post-merger debt.



       1
         Even though this position was ultimately rejected by the Delaware Chancery Court, the
judge in that case found that the position was reasonable as a matter of law and sufficiently
strong that the court came “exceedingly close” to granting the remedy of specific performance to
URI on summary judgment. United Rentals, Inc. v. RAM Holdings, Inc., 

, 814, 833
n.104 (Del. Ch. 2007).

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       These and other facts convince us that the more likely interpretation of the events

surrounding the August 29th meeting between RAM and representatives of URI is that URI

believed that the deal was going to close under the terms negotiated in the merger agreement.

We therefore conclude that plaintiffs-appellants do not meet the Tellabs standard of setting forth

an “inference of scienter cogent and at least as compelling as any opposing inference one could

draw from the facts alleged.” 

.

       Due to our disposition based on absence of scienter, we need not and do not address

issues of materiality. See, e.g., Kalnit v. Eichler, 

, 144 (2d Cir. 2001). Similarly,

plaintiffs-appellants’ section 20(a) claim fails because they fail to show a “primary violation by a

controlled person.” 

(internal quotation marks omitted).

       Accordingly, the judgment of the district court is AFFIRMED.



                                                     FOR THE COURT:
                                                     Catherine O’Hagan Wolfe, Clerk




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