In re CENTERLINE HOLDING COMPANY SECURITIES LITIGATION. J. Michael Fried, Joseph A. Braddock, Norman Millman and Edward Friedlander, as Trustee for the Ed Friedlander Trust, individually and on behalf of all others similarly situated (collectively known as the "Centerline Investor Group"), Plaintiffs-Appellants, Mark K. Goldstein, Deborah Dechter, Peter Frank, Thomas Lyons, and Lori Weinrib, Consolidated Plaintiffs, v. Centerline Holding Company, Marc D. Schnitzer, Robert L. Levy, Jeff T. Blau, and Stephen M. Ross, Defendants-Appellees, 380 F. App'x 91

SUMMARY ORDER Plaintiffs-Appellants, both individually and on behalf of a group of similarly situated investors, appeal from the January 12, 613 F.Supp.2d 394, and August 4, 2009, 678 F.Supp.2d 150, orders of the United States District Court for the Southern District of New York (Scheindlin, J.), dismissing their securities fraud claims brought under

Section 10(

b) of the Securities Exchange Act for failing adequately to plead scienter, and consequently dismissing their control person liability claims under

Section 20(

a) of the Act. We assume the parties’ familiarity with the underlying facts, procedural history, and specification of the issues on appeal. This Court reviews a district court’s dismissal of a complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) de novo, accepting all factual allegations as true and drawing all reasonable inferences in favor of the plaintiff. ECA, Local 134 IBEW Joint Pension Trust of Chicago v. JP Morgan Chase Co., 553 F.3d 187, 196 (2d Cir.2009). “To survive a motion to dismiss, a complaint must plead ‘enough facts to state a claim to relief that is plausible on its face.’” Ruotolo v.

City of New York, 514 F.3d 184, 188 (2d Cir.2008) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)); see also ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 & n. 2 (2d Cir.2007) (applying Twombly standard to securities fraud claim). A

Section 10(

b) claim requires a plaintiff to “establish that ‘the defendant, in connection with the purchase or sale of securities, made a materially false statement or omitted a material fact, with scienter, and that the plaintiffs reliance on the defendant’s action caused injury to the plaintiff.’” Lawrence v. Cohn, 325 F.3d 141, 147 (2d Cir.2003) (quoting Ganino v. Citizens Utils. Co., 228 F.3d 154, 161 (2d Cir.2000)). For an omission to be considered actionable under

Section 10(

b) and the SEC’s implementing regulation, the defendant must be subject to an underlying duty to disclose. See Basic Inc. v. Levinson, 485 U.S. 224, 239 n. 17, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988) (“To be actionable, ... a statement must also be misleading. Silence, absent a duty to disclose, is not misleading under Rule 10b-5.”); Vacold LLC v. Cerami, 545 F.3d 114, 121 (2d Cir.2008). Such a duty can arise from the need to make prior statements not misleading. 17 C.F.R § 240.10b-5(b); see also In re Time Warner Inc. Secs. Litig., 9 F.3d 259, 268 (2d Cir.1993).

The Private Securities Litigation Reform Act (“PSLRA”) imposes additional requirements on a securities fraud plaintiff: Any complaint alleging securities fraud must satisfy the heightened pleading requirements of the PSLRA and Fed. R.Civ.P. 9(

b) by stating with particularity the circumstances constituting fraud. Under the PSLRA, the complaint must specify each statement alleged to have been misleading, and the reason or reasons why the statement is misleading, and state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.

Therefore, while we normally draw reasonable inferences in the non-movant’s favor on a motion to dismiss, the PSLRA establishes a more stringent rule for inferences involving scienter because the PSLRA requires particular allegations giving rise to a strong inference of scienter. ECA, 553 F.3d at 196 (internal quotation marks, citations, and brackets omitted). Scienter can be established in the context of a

Section 10(

b) claim “by alleging facts to show either (1) that defendants had the motive and opportunity to commit fraud, or (2) strong circumstantial evidence of conscious misbehavior or recklessness.” Id. at 198 (citing Ganino, 228 F.3d at 168-69). “Conscious misbehavior or recklessness,” in turn, can be established by showing, inter alia, that defendants “knew facts or had access to information suggesting that their public statements were not accurate.” Id. at 199 (quoting Novak v. Kasaks, 216 F.3d 300, 311 (2d Cir.2000)) (internal quotation marks omitted).

But conversely, where liability is premised upon alleged material omissions, if the complaint “does not present facts indicating a clear duty to disclose” — such as that arising from the need to correct or update prior statements — “plaintiffs scienter allegations do not provide strong evidence of conscious misbehavior or recklessness.” Kalnit v. Eichler, 264 F.3d 131, 144 (2d Cir.2001) (emphasis omitted).

On appeal, Plaintiffs focus upon Defendants’ alleged material omissions, arguing that the Defendants had a duty to disclose their plans to transform Centerline’s business model from one focused on the generation of distributable tax-exempt income to that of an asset manager focused on growth. Plaintiffs argue that Defendants’ duty to disclose arose primarily from the need to make various statements made to investment analysts during the class period not misleading.

After a careful review of the class period statements identified by Plaintiffs, we affirm the dismissal of Plaintiffs’ claims for substantially the reasons identified in the district court’s January 12 and August 4, 2009 orders.

We note particularly that the effort in Plaintiffs’ amended complaint to characterize many of Defendants’ class period statements as speaking to the company’s future plans — and thus as misleading in light of Defendants’ undisclosed plans for Centerline — fails when the statements are reviewed in their entirety and in the context of the questions from analysts to which they were responsive. See Cortec Indus., Inc. v.

Sum Holding L.P., 949 F.2d 42, 47 (2d Cir.1991) (noting well-established rule that a “complaint is deemed to include any written instrument attached to it as an exhibit or any statements or documents incorporated in it by reference”). These statements were not rendered misleading by the Defendants’ omissions. Because Defendants therefore had no clear duty to disclose their plans, and for the other reasons identified by the district court, Plaintiffs’ amended complaint did not adequately allege “conscious misbehavior or recklessness,” and otherwise failed sufficiently to allege fraudulent scienter.

We have considered the Plaintiffs’ remaining arguments and find them to be without merit. For the foregoing reasons, the district court’s judgment is AFFIRMED.