Briarwood Investments, Inc. et al v. Care Investment Trust Inc., No. 1:2007cv08159 - Document 93 (S.D.N.Y. 2010)
Court Description: OPINION AND ORDER re: Granting defendants' 78 MOTION for Summary Judgment. The Clerk is directed to enter judgment accordingly. By January 15, 2010, the lead plaintiffs shall submit to this Court a letter addressing which of the redacted documents submitted in opposition to the motion should remain redacted, and the reason (if any) for each document's continued redaction. (Signed by Judge Louis L. Stanton on 12/22/10); (djc) Modified on 12/29/2010 (djc).
Briarwood Investments, Inc. et al v. Care Investment Trust Inc. Doc. 93 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK - - - - - - - - - - - - - - - - - - -X BRIARWOOD INVESTMENTS, INC., Individually and on Behalf of All Others Similarly Situated Plaintiff, OPINION AND ORDER - against - 07 Civ. 8159 (LLS) CARE INVESTMENT TRUST INC., F. SCOTT KELLMAN, ROBERT O’NEILL, and FLINT D. BESECKER, Defendants. - - - - - - - - - - - - - - - - - - -X Defendant Care Investment Trust Inc. filed a registration statement Commission and prospectus (“SEC”) in with the connection offering (the “Care IPO”). Securities with its and initial Exchange public Defendants Kellman, O’Neill, and Besecker each signed the registration statement. The issue on the defendants’ motion for summary judgment is whether Care’s registration statement and prospectus contained materially false or misleading statements, in violation of sections 11, 12(a)(2), and 15 of the Securities Act of 1933, 15 U.S.C. §§ 77k, 77l (a)(2), 77o, regarding Care’s expectation of securing warehouse financing. BACKGROUND The following facts are not disputed, except where noted. Care Investment Trust is a real estate investment trust, managed by CIT Healthcare LLC, a wholly owned subsidiary of CIT - 1 Dockets.Justia.com Group Inc. (“CIT”). Care provides mortgage financing to healthcare-related facilities and invests in healthcare-related real estate assets. The individual defendants are former Managing Director and Head of Real Estate for CIT Healthcare and former Care CEO F. Scott Kellman; former CFO, Treasurer, and Secretary of Care Robert O’Neill; and former President of CIT Healthcare and current director on Care’s board Flint Besecker. The lead plaintiffs are UNITE HERE National Retirement Fund and Norfolk County Retirement System, who are pursuing this claim on behalf of a putative class consisting of purchasers of stock in reliance on Care’s IPO documents. CIT decided to fund Care by warehouse financing (also known as a “warehouse facility” or “warehouse line”), which “is typically a form of short-term financing that is provided by one or more banks.” Decl. Ex. 1. President and Ashraf Dep. 21:25-22:3, Feb. 5, 2010, Rosenfeld Besecker worked with Usama Ashraf, a Senior Vice Assistant Treasurer financing strategy for Care. of CIT, to formulate a Cathleen Crowley-Piscitell, Chief Risk Officer of CIT Healthcare, and William Harris, an Assistant Vice President in Strategic Finance for CIT, were also part of the team implementing Care’s debt strategy. In January and February 2007, representatives of CIT met with several banks, including Credit Suisse Securities (USA), LLC, also an underwriter for Care’s IPO, to discuss warehouse - 2 - financing for Care. Estate Capital On February 15, 2007, Credit Suisse Real provided CIT Care’s warehouse facility. the SEC its initial with an initial term sheet for On March 29, 2007, Care filed with registration statement, which stated in relevant part, “We will use short-term financing, in the form of warehouse facilities. Warehouse lines are typically collateralized loans made to borrowers who invest in securities and loans and, in turn, pledge the resulting securities and loans to the warehouse lenders.” Joint Statement of Facts ¶ 26. CIT and Credit Suisse continued to negotiate, and on April 26, 2007, Credit Suisse After comparing provided Credit Care Suisse’s with terms a to final term those of sheet. other potential lenders, CIT selected Credit Suisse as a warehouse lender for Care because “we thought that Credit Suisse had one of the better proposals.” Ashraf Dep. 90:16-17, Kratenstein Decl. Ex. 2. While in negotiations with Credit Suisse, CIT also sought an additional warehouse lender who would match Credit Suisse’s terms for Care. UBS Real Estate Securities Inc., an affiliate of Care IPO underwriter UBS Securities LLC, sent CIT an initial term sheet on May 7, 2007. On May 11, 2007, Care filed with the SEC its first amended registration statement, which contained the same language regarding warehouse financing as the initial registration statement. UBS sent CIT a revised term sheet on - 3 - May 18, 2007. By May 23, 2007, CIT selected UBS as Care’s second warehouse lender, believing that UBS’s terms most closely matched those of Credit Suisse. Before facilities, internally both approving potential investigations of Care. credit lenders for conducted the warehouse “due diligence” On May 25, 2007, representatives from Credit Suisse met with CIT Healthcare employees and prospective Care officers,1 and requested a follow-up meeting to discuss, among other members of things, CIT gave warehouse a financing. presentation On for June Care’s 4, 2007, prospective directors,2 at which they identified Credit Suisse and UBS as Care’s potential representatives warehouse held an lenders. in-person On June session 6, similar 2007, to UBS that earlier conducted by Credit Suisse. Recognizing that the warehouse financing might not close by the date of the Care IPO, CIT circulated a draft registration statement on June 6, 2007, which stated in relevant part: We are currently negotiating a warehouse facility with Column Financial, Inc., an affiliate of Credit Suisse Securities, LLC, an affiliate of one of our underwriters, which we expect to be in place shortly after the consummation of this offering. We are also currently negotiating a warehouse facility with UBS Real Estate Securities Inc., an affiliate of one of our underwriters. There is no assurance, however, that we will be able to close these facilities on 1 Because Care was not yet formally in being (since it was formed only to participate in this transaction), its officers and directors were not yet in office. 2 Care’s officers and directors were not yet in office. See note 1 supra. - 4 - terms favorable to us, if at all. Kratenstein Decl. Ex. 53. Shortly thereafter, each of Care’s underwriters, including Credit Suisse and UBS, consented to the use of that language. Certain minor changes were made to the draft registration statement, including the addition of a clause stating that Care expected to close its warehouse facility with UBS “soon after the consummation” of the IPO. These changes were included in Care’s second amended registration statement, filed with the SEC on June 7, 2007. The second amended registration statement contained the following disclosure, the one in issue in this case (the “Disclosure”): We will use short-term financing, in the form of warehouse facilities. Warehouse lines are typically collateralized loans made to borrowers who invest in securities and loans and, in turn, pledge the resulting securities and loans to the warehouse lender. We are currently negotiating a warehouse facility with Column Financial Inc., an affiliate of Credit Suisse Securities, LLC, an affiliate of one of our underwriters, which we expect to be in place shortly after the consummation of this offering. We are also currently negotiating a warehouse facility with UBS Real Estate Securities Inc., an affiliate of one of our underwriters, which we expect to be in place soon after the consummation of this offering. There is no assurance, however, that we will be able to close these facilities on terms favorable to us, if at all. Kratenstein Decl. Ex. 57. CIT employees warehouse lines. continued to work toward securing the Ashraf e-mailed Crowley-Piscitell and Harris on June 8, 2007, discussing the “due diligence” session with - 5 - UBS, and mentioned that a UBS representative suggested June 30, 2007, as the date by which UBS would provide internal credit approval for the warehouse facility. final documentation process would last receiving internal credit approval. 41. Ashraf also said that the several weeks after See Kratenstein Decl. Ex. Also on June 8, 2007, Crowley-Piscitell e-mailed Besecker to say that her meeting with Credit Suisse “went very well,” and that Credit Suisse “hedged on meeting end of month timeline, but will be likely done with approvals by end on [sic] next week or beg of the following week.” Kratenstein Decl. Ex. 44. During the week leading up to the Care IPO CIT continued to cooperate with Credit Suisse and UBS on closing the warehouse financing. Credit Suisse was awaiting approval from its outside counsel before completing its internal approval process. UBS was conducting further “due diligence,” and on June 18, 2007, Crowley-Piscitell stated to Besecker that she anticipated UBS’s approval that week. Care filed with the SEC its final prospectus and registration statement on June 21, 2007, each of which contained the Disclosure, as quoted above. in its capacity prospectus. as Each of Credit Suisse and UBS, underwriter, approved Care’s final The registration statement was declared effective by the SEC on June 22, 2007. Discussions with both Credit - 6 - Suisse and UBS continued throughout the summer of 2007, and Credit Suisse’s credit committee gave its approval on June 29. internal However, by August 14, 2007, when Care filed its Form 10-Q with the SEC, market conditions had deteriorated either warehouse facility. and Care had not closed In its Form 10-Q, Care explained: Since June 30, 2007, investor concerns surrounding sub-prime mortgage credit risk, hedge fund losses, a large volume of unsuccessful leveraged loan syndications and related impact on the overall credit markets, including widening of credit spreads, have materially impacted liquidity in the debt markets, making financing terms for borrowers less attractive. Consequently, our efforts to negotiate our warehouse facilities on terms favorable to us are taking longer than expected. Should the current market conditions continue, our ability to grow may be impeded. We are in discussions with several financial institutions relating to other short-term financings. Kratenstein Decl. Ex. 89. On October 1, 2007, Care closed its warehouse facility with Credit Suisse, albeit on terms less favorable than those in Credit Suisse’s final term sheet. UBS declined the warehouse financing deal in late 2007. When this action was brought, Care’s stock traded for a third less than its IPO price. The defendants move for summary judgment that the lead plaintiffs have presented no evidence sufficient to raise an issue whether the Disclosure contained an untrue statement of material fact, or omitted to state a material fact required to make the disclosure not misleading. - 7 - DISCUSSION Under Federal Rule of Civil Procedure 56(a), “the court shall grant summary judgment if the movant shows that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.” “This standard requires that courts resolve all ambiguities, and credit all factual inferences that could rationally be drawn, in favor of the party opposing summary judgment.” Spinelli v. City of New York, 579 F.3d 160, 166 (2d Cir. 2009) (internal quotation marks omitted). The Disclosure was an expression of opinion; however, in the securities law context, an opinion may be treated as false or misleading “if the speaker does not genuinely and reasonably believe it or if it is without a basis in fact.” Kowal v. Int’l Bus. Machs. Corp. (In re Int’l Bus. Machs. Corp. Sec. Litig.), 163 F.3d 102, 109 (2d Cir. 1998). they are plaintiffs entitled “can to point summary to no The defendants argue that judgment evidence because that Care’s the lead warehouse financing disclosure was false on the date it was published, let alone sufficient evidence to create an issue of material fact.” Defs.’ Mem. Law in Supp. of Their Mot. Summ. J. 3. plaintiffs counter that the “Defendants cannot The lead legitimately argue that the issues of (i) whether they believed Care would secure warehouse financing shortly - 8 - after the IPO; and (ii) whether such belief was reasonable, pose anything other than material factual questions that are incapable of resolution on this motion.” Lead Pls.’ Mem. Law in Opp’n to Defs.’ Mot. Summ. J. 1. I. Care’s Disclosure provided in part, “We are currently negotiating a warehouse facility with Column Financial Inc., an affiliate of Credit Suisse Securities, LLC, an affiliate of one of our underwriters, which we expect to be in place shortly after the consummation of this offering.” 57. Kratenstein Decl. Ex. Two of the individual defendants testified that the phrase “shortly after” referred to a time period measured by weeks, as opposed to months. See Besecker Dep., Feb. 24, 2010, 161:13-16, Rosenfeld Decl. Ex. 2; Kellman Dep., Feb. 17, 2010, 92:8-14, Rosenfeld Decl. Ex. 4. There is no genuine factual question that the defendants reasonably warehouse believed facility the was statement expected consummation of the Care IPO. Michael McDugall, informed defendants CIT to that the close Credit shortly Suisse after the In an e-mail on June 22, 2007, Healthcare’s Besecker, O’Neill, Chief and Credit Kellman Officer, that the warehouse lines would close “Best case -- week after next.” Kratenstein Decl. Ex. 70. informed Crowley-Piscitell On that same day, a Friday, McDugall and defendant - 9 - O’Neill that Credit Suisse was “still waiting for last legal docs before they start approval. They will have all docs by Monday.” Decl. 71. Ex. Each individual defendant Kratenstein testified why he believed that the warehouse facility would close shortly after the Care IPO. See Besecker Dep. 272:1-6, Kratenstein Decl. Ex. 3 (“I had been given updates by both the treasury CIT team in addition to the CIT Healthcare team and those updates indicated that they were making substantial progress with Credit Suisse towards the consummation and closing of a warehouse line of credit.”); id. at 272:10-13(“I spoke directly with multiple Credit Suisse individuals who led me to believe that the credit facility would close soon or shortly thereafter.”); Kellman Dep. 208:2-6, Kratenstein Decl. Ex. 6 (“Everyone in our team was working to move forward and close those facilities. And so it was my understanding from the facts and circumstances at the time that those facilities would be closed shortly after the IPO.”); O’Neill Dep. 188:2-10, Feb. 19, 2010, Kratenstein Decl. Ex. 7 (his facility expectation with Column that soon Care after would the IPO close was its warehouse “based on my interaction with the internal players with Care and CIT, as well as with the investment bankers”). There is no dispute that representatives of Credit Suisse consented to the language in the Disclosure. See Counterstatement of Material Facts Opp’n Defs.’ Mot. Summ. J. ¶ - 10 - 68; see also Besecker Dep. 274:7-11, Kratenstein Decl. Ex. 3 (“CS’ sign-off” Disclosure). Care “gave me a lot of confidence” in the Furthermore, those at Credit Suisse working on the warehouse line told Credit Suisse’s internal credit committee they believed that the facility would close shortly after the Care IPO: in the memorandum seeking approval of the loan, dated June 28, 2007, they stated, “If approved, CS would anticipate closing the Facility funding occurring at that time.” in July 2007, with initial Kratenstein Decl. Ex. 73 at 8. The authors of the memorandum include Ken Rivkin, Andrew Winer, and Damon Pitler, each of whom was involved in negotiating the Care warehouse facility with CIT. The contemporaneous statements and actions of Credit Suisse, an ultimate source of the proposed financing, gave the authors of the IPO documents a sound basis for their Disclosure statements, whose specific language was approved by Credit Suisse as an underwriter. II. With regard to UBS, the Disclosure stated, “We are also currently negotiating a warehouse facility with UBS Real Estate Securities Inc., an affiliate of one of our underwriters, which we expect to be in place soon after the consummation of this offering.” Kratenstein Decl. Ex. 57. The phrase “soon after,” as used in the Disclosure, had the same meaning as “shortly after.” Besecker Dep. 179:1-5, Rosenfeld Decl. Ex. 2. - 11 - Although UBS became involved in the warehouse financing process later than Credit Suisse, its representatives undertook efforts to accelerate the process. In a June 6, 2007, e-mail, Scott Liebman, Managing Director in UBS’s Real Estate Finance division, reported to other UBS employees that “CIT wants to close by month-end,” and that “The gameplan is to simultaneously underwrite CIT (and documentation.” their portfolio) and Kratenstein Decl. Ex. 42. work on the legal The next day, Harris e-mailed Crowley-Piscitell and Ashraf, informing them that UBS had retained the same outside counsel as Credit Suisse (Cadwalder, Wickersham & Taft LLP), and that “it is likely that both the CS and UBS facilities will close at the same time.” Kratenstein Decl. Ex. 41. and Harris that “The Ashraf explained to Crowley-Piscitell 6/30 date UBS had mentioned at the diligence was to get their internal credit approvals and not to close the facility.” approval from UBS Id. was He added that obtaining internal important, “so we can focus on the documentation process which will take several weeks post credit approvals.” Id. understanding by Taken together, this evidence reflects an members of both UBS and CIT that internal approval from UBS was expected around the end of June, with the facility to close several weeks later. There is no conflicting factual evidence that the defendants did not believe that the UBS warehouse facility would close soon after the Care IPO. - 12 - On June 18, 2007, Harris e-mailed a fellow CIT employee saying that he had “not heard much from UBS other than a couple of requests.” Rosenfeld Decl. Ex. 87. The lead plaintiffs characterize the lack of communication from UBS to Harris as UBS’s “withdrawing from the process.” 23. The Harris e-mail does not Lead Pls.’ Opp’n at 22support that supposition. Crowley-Piscitell e-mailed Besecker on June 18, 2007, to say that she “Chatted with both CS and UBS today directly. UBS is finishing noted. up some of their internal Anticipate approval this week.” next day, Scott Liebman Cadwalder is CS using? start the process?” work, no issues Kratenstein Decl. Ex. 59. e-mailed Harris to ask, “Who The at If they haven’t started yet, should we Kratenstein Decl. Ex. 64. That same day, Aaron Niedermayer, from UBS’s Real Estate Finance division, emailed Michael completing “due Schuman of diligence” Kratenstein Decl. Ex. 65. CIT on Healthcare the Care for warehouse assistance facility. Finally, on June 22, 2007, the day of the Care IPO, Harris e-mailed Gail Schragel of UBS, stating, “We appreciate your commitment to closing the facility as quickly as possible.” Kratenstein Decl. Ex. 69. Thus, there was a basis in fact for the defendants’ expectations with regard to UBS. Not surprisingly, the defendants relied on the prospective lenders’ communications with them, in their belief that the UBS warehouse facility would close - 13 - soon after the Care IPO. Besecker Dep. 272:25-273:5, Kratenstein Decl. Ex. 3 (“I did expect that Care would close on the warehouse line of credit soon or shortly thereafter based on conversations directly with UBS folks that CIT had had, that I had had, as well as other monitoring activities by the debt team that occurred throughout the IPO process.”); Kellman Dep. 207:17-208:6, Kratenstein Decl. Ex. 6; O’Neill Dep. 189:13-24, Kratenstein Decl. Ex. 7. UBS consented to a modified version of the Disclosure, which did not state when Care would close the facility, but affirmed that Care expected to close a warehouse facility with UBS. See Kratenstein Decl. Ex. 55; Statement of Undisputed Material Facts Supp. Mot. Summ. J. ¶¶ 64, 67. underwriter, also approved UBS, in its capacity as an Care’s registration statement and final prospectus, which contained the Disclosure in its final See Joint Statement ¶ 35. form. The lead plaintiffs point to no evidence that either the lenders or the borrowers doubted that their statements were true. III. The lead plaintiffs say that neither the Disclosure nor belief in it was reasonable, as challenged by a financial expert, who concludes the Disclosure “did not accurately portray Care Investment Trust’s (“Care”) status in securing warehouse financing.” Decl. of Richard W. Payne, III, at 6, Rosenfeld - 14 - Decl. Ex. 123. Mr. Payne asserts that Care’s management was too inexperienced to conclude they could expect to secure warehouse financing and that the approval process was not yet at a stage “where one could reasonably state they expected the facility to be in place within any time frame.” Id. at 8-9. But those “expert” conclusions disregard the fact that the defendants were consistently assured by Credit Suisse that the warehouse facility would close soon after the Care IPO. only did committee Credit Suisse approved the approve the facility documentation on June 29, 2007. Disclosure: and the its credit preparation Kratenstein Decl. Ex. 74. Not of This confirms, rather than undercuts, the reasonableness of stating in the Disclosure (seven days earlier) an expectation that it would close (accompanied by a disavowal of any assurance). Credit Suisse’s approval of the deal, after it had completed its initial “due diligence” inquiries, overcomes the opinion that that was not reasonably to be expected.3 expert’s See Raskin v. Wyatt Co., 125 F.3d 55, 66 (2d Cir. 1997) (“[A]n expert’s report is not a talisman against summary judgment.”). In the month following the credit approval, Credit Suisse examined every loan designated for inclusion in the warehouse facility. Kratenstein Decl. Ex. 80. Ultimately, due in part to “turmoil in the credit markets,” id., Credit Suisse extended the 3 Cf. the old trial lawyers’ aphorism, “One fact is worth a shipload of argument.” - 15 - Care warehouse line on terms less favorable than were stated in its final term sheet. Joint Statement ¶ 42. However, those future events do not bear upon the defendants’ beliefs regarding the Credit Suisse warehouse financing as of June 22, 2007. The expert report similarly fails to raise an issue of material fact with regard to the UBS warehouse facility. On June 6, 2007, the Managing Director of UBS acknowledged to his co-workers that “CIT wants to close by month-end,” and detailed steps for expediting the process. Crowley-Piscitell defendants in and Ashraf, attempting to See Kratenstein Decl. Ex. 42. who obtain worked closely warehouse with financing, the were informed by their colleague at CIT that “it is likely that both the CS and UBS facilities Kratenstein Decl. Ex. 41. will close at the same time.” On June 18, 2007, Crowley-Piscitell informed defendant Besecker “UBS is finishing up some of their internal work, no issues noted. Kratenstein Decl. Ex. 59. Anticipate approval this week.” CIT’s Chief Credit Officer informed Besecker on June 22, 2007, the day of the Care IPO, that both the UBS and Credit Suisse lines would be closed “Best case -week after next.” Kratenstein Decl. Ex. 70. As in Int’l Bus. Machs., 163 F.3d at 109, summary judgment in the evidence defendants’ in the favor record is appropriate where to support finding a “there that is no these statements were made in bad faith or that the speakers did not - 16 - genuinely and reasonably believe that they were accurate. also Fecht v. 116 judgment N. F. Telecom Supp. appropriate opinion or belief in fact speaker" and H See Ltd. 2d 446, because 466 (S.D.N.Y. "forward-looking 2000) (summary statements of . are not actionable if they have a basis are genuinely and reasonably believed by the (internal quotation marks omitted)). CONCLUSION The defendants' motion for summary judgment is granted. The Clerk is directed to (Docket No. 78) enter judgment accordingly. By January 15, this Court a submitted 2010, the lead plaintif shall submit to letter addressing which of the redacted documents in opposition to the motion should remain redacted, and the reason (if any) for each document's continued redaction. So ordered. Dated: New York, New York December 22, 2010 LOUIS L. STANTON U. S. D. J. 17