U.S. Court of Appeals for the Second Circuit Affirms Dismissal of Shareholder Class Action Against Kramer Levin Client United Rentals Inc.

On August 30, 2010, the U.S. Court of Appeals for the Second Circuit affirmed the dismissal of a purported shareholder class action lawsuit against Kramer Levin client United Rentals, Inc. and two company executives. Lead Plaintiffs asserted securities fraud claims arising from the failure in November 2007 of the merger between United Rentals and affiliates of Cerberus Capital Partners, L.P. According to the second consolidated amended complaint, defendants wrongfully failed to disclose that, six weeks after the announcement of the merger agreement, Cerberus requested a meeting to discuss revising the deal terms. The District Court held -- in light of, among other facts, Cerberus’ express disclaimer of any intent to repudiate the deal when it requested further discussions, and the parties’ ten weeks of work to close the deal after United Rentals rejected Cerberus’ overture -- that, under the weighing analysis that the Supreme Court established in Tellabs, Inc. v. Makor Issues & Rights, Ltd., Lead Plaintiffs had failed to plead facts giving rise to the necessary strong inference of scienter. The Second Circuit agreed, holding that “even though plaintiffs-appellants put forth a plausible interpretation of [United Rentals’] actions, that interpretation is belied by many other factors -- and by certain actions taken by . . . Cerberus -- which persuade us that it is more likely than not the case that [United Rentals] believed the deal would close as originally negotiated.”

The Kramer Levin team consisted of Litigation partners Gary P. Naftalis, Alan R. Friedman and Stephen M. Sinaiko, and associates Michael J. Sternhell and Jared I. Heller. Also representing United Rentals were Martin J. Auerbach, Esq. and Jonathan M. Gottsegen, Senior Vice President, General Counsel and Corporate Secretary of United Rentals.

Law360 and Rental Equipment Register Magazine reported on the case.