7 F.3d 357 (3rd Cir. 1993), 92-5350, In re Donald J. Trump Casino Securities Litigation-Taj Mahal Litigation

Docket Nº:92-5350.
Citation:7 F.3d 357
Party Name:In re DONALD J. TRUMP CASINO SECURITIES LITIGATION--TAJ MAHAL LITIGATION. Sidney L. KAUFMAN, suing individually and on behalf of a class of persons similarly situated; Jerome Schwartz, suing individually and on behalf of a class of persons similarly situated; Peter Stuyvesant, Ltd., on behalf of itself and all others similarly situated; Susan Cagan
Case Date:October 14, 1993
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit
 
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Page 357

7 F.3d 357 (3rd Cir. 1993)

In re DONALD J. TRUMP CASINO SECURITIES LITIGATION--TAJ

MAHAL LITIGATION.

Sidney L. KAUFMAN, suing individually and on behalf of a

class of persons similarly situated; Jerome Schwartz, suing

individually and on behalf of a class of persons similarly

situated; Peter Stuyvesant, Ltd., on behalf of itself and

all others similarly situated; Susan Cagan; Eric Cagan;

David E. Dougherty; Jean Curzio; Alexander L. Charnis;

Dorothy Arkell; Fred Glossner; Herman Krangel; Robert

Kloss; Helen Kloss; Fairmount Financial Corp.; Joanne

Gollomp; Dino Del Zotto

v.

TRUMP'S CASTLE FUNDING; Trump's Castle Associates Limited

Partnership, a New Jersey Limited Partnership; Trump Taj

Mahal Funding, Inc., a New Jersey Corporation; Trump Taj

Mahal Associates Limited Partnership, a New Jersey Limited

Partnership; Donald J. Trump; Robert S. Trump; John

O'Donnell; Nathan Katz; Tim Maland; Francisco Tejeda;

Julian Menarguez; Harvey I. Freeman; Paul Henderson;

Patrick C. McKoy; Edward M. Tracy; Michael S. Vautrin;

Jeffrey A. Ross; John P. Belisle; Timothy G. Rose; Lori

Taylor; C. "Bucky" Willard; The Trump Organization, Inc.;

Trump Taj Mahal, Inc.; Merrill Lynch, Pierce, Fenner &

Smith Incorporated.

Sidney L. KAUFMAN, suing individually and on behalf of a

class of persons similarly situated

v.

TRUMP'S CASTLE FUNDING; Trump's Castle Associates Limited

Partnership, a New Jersey Limited Partnership; Trump Taj

Mahal Funding, Inc., a New Jersey Corporation; Trump Taj

Mahal Associates Limited Partnership, a New Jersey Limited

Partnership; Donald J. Trump.

Jerome SCHWARTZ, suing individually and on behalf of a class

of persons similarly situated

v.

TRUMP'S CASTLE FUNDING, INC. (A New Jersey Corporation);

Trump's Castle Associates Limited Partnership (A New Jersey

Limited Partnership); Trump Taj Mahal Funding, Inc. (A New

Jersey Corporation); Trump Taj Mahal Associates Limited

Partnership (A New Jersey Limited Partnership); Donald J. Trump.

PETER STUYVESANT, LTD., on behalf of itself and all others

similarly situated

v.

Donald J. TRUMP; Robert S. Trump; John O'Donnell; Trump

Plaza Funding, Inc.; Nathan Katz; Tim Maland; Trump Plaza

Associates; Francisco Tejeda; Julian Menarguez; Harvey I.

Freeman; Paul Henderson; Patrick C. McKoy; Edward M.

Tracy; Michael S. Vautrin; Jeffrey A. Ross; John P.

Belisle; Timothy G. Rose; Trump's Castle Funding, Inc.;

Lori Taylor; Trump's Castle Associates Limited Partnership.

Susan CAGAN; Eric Cagan; David E. Dougherty; Jean Curzio

v.

Donald J. TRUMP; Robert S. Trump; Harvey I. Freeman; C.

"Bucky" Willard; Trump Taj Mahal Funding, Inc.; Trump Taj

Mahal Associates Limited Partnership; The Trump

Organization, Inc.; Trump Taj Mahal Incorporated; Merrill

Lynch, Pierce, Fenner & Smith Incorporated.

Alexander L. CHARNIS; Dorothy Arkell

v.

Donald J. TRUMP; Robert S. Trump; Harvey I. Freeman; C.

"Bucky" Willard; Trump Taj Mahal Funding, Inc.; Trump Taj

Mahal Associates Limited Partnership; The Trump

Organization, Inc.; Merrill Lynch, Pierce, Fenner & Smith

Incorporated.

FAIRMONT FINANCIAL CORP.; Joanne Gollomp, on behalf of

themselves and all others similarly situated

v.

Donald J. TRUMP; Harvey S. Freeman; Robert S. Trump; The

Trump Organization, Inc.; Merrill Lynch, Pierce, Fenner &

Smith Incorporated; Trump Taj Mahal Funding, Inc.; Trump

Taj Mahal, Inc.; Trump Taj Mahal Associates Limited Partnership.

Robert KLOSS; Helen Kloss

v.

Donald J. TRUMP; Robert S. Trump; Harvey I. Freeman; C.

"Bucky" Willard; Trump Taj Mahal Associates Limited

Partnership; The Trump Organization, Inc.; Trump Taj

Mahal, Inc.; Merrill Lynch, Pierce, Fenner & Smith Incorporated.

Fred GLOSSNER; Herman Krangel

v.

Donald J. TRUMP; Harvey S. Freeman; Robert S. Trump; The

Trump Organization, Inc.; Merrill Lynch, Pierce, Fenner &

Smith Incorporated; Trump Taj Mahal Funding, Inc.; Trump

Taj Mahal, Inc.; Trump Taj Mahal Associates Limited Partnership.

Dino DEL ZOTTO

v.

Donald J. TRUMP; Robert S. Trump; Harvey I. Freeman; C.

"Bucky" Willard; Trump Taj Mahal Funding, Inc.; Trump

Taj Mahal Associates; The Trump Organization, Inc.;

Trump Taj Mahal, Inc.; Merrill Lynch, Pierce, Fenner &

Smith Incorporated,

Joanne Gollomp, Susan Cagan, Eric Cagan, David E. Dougherty,

Jean Curzio, Robert and Helen Kloss, Fred Glossner, Herman

Krangel, Sidney Kaufman, Jerome Schwartz, Dino Del Zotto,

Alexander L. Charnis and Dorothy Arkell, on behalf of

themselves and all others similarly situated, Appellants.

No. 92-5350.

United States Court of Appeals, Third Circuit

October 14, 1993

Argued Jan. 29, 1993.

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Stuart D. Wechsler (argued), Joel C. Feffer, New York City, Stanley R. Wolfe, Todd S. Collins, Berger & Montague, P.C., Philadelphia, PA, Carl D. Poplar, Cherry Hill, NJ, Gerald Jay Rodos, Barrack, Rodos & Bacine, Philadelphia, PA, Robert S. Schachter, Zwerling, Schachter & Zwerling, Bruce E. Gerstein, Garwin, Bronzaft, Gerstein & Fisher, New York City, Charles V. Van de Walle, Martin, Van de Walle, Guardino & Donohue, Great Neck, NY, Jared Stamell, Joseph J. Tabacco, Jr., Stamell, Tabacco & Schager, Joseph H. Weiss, New York City, Michael A. Cohan, Cohan & Eckhaus, Parlin, NJ, James V. Bashian, New York City, C. Oliver Burt, III, James R. Malone, Mark C. Rifkin, Debra N. Nathanson, Greenfield & Chimicles, Haverford, PA, Howard A. Specter, Pittsburgh, PA, for appellants.

Richard L. Posen (argued), Willkie Farr & Gallagher, New York City, John J. Barry, Clapp & Eisenberg, P.C., Newark, NJ, Stuart J. Baskin (argued), Shearman & Sterling, New York City, for appellees.

Before: BECKER, ALITO, Circuit Judges and ATKINS, District Judge. [*]

Page 364

OPINION OF THE COURT

BECKER, Circuit Judge.

This is an appeal from orders of the district court for the District of New Jersey dismissing a number of complaints brought under various provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934 by a class of investors who purchased bonds to provide financing for the acquisition and completion of the Taj Mahal, a lavish casino/hotel on the boardwalk in Atlantic City, New Jersey. The defendants are Donald J. Trump ("Trump"), Robert S. Trump, Harvey S. Freeman, the Trump Organization Inc., Trump Taj Mahal Inc., Taj Mahal Funding Inc. and Trump Taj Mahal Associates Limited Partnership (the "Partnership") 1 (collectively the "Trump defendants") and Merrill Lynch, Pierce, Fenner and Smith Inc. ("Merrill Lynch"). The complaints allege that the prospectus accompanying the issuance of the bonds contained affirmatively misleading statements and materially misleading omissions in contravention of the federal securities laws.

The district court dismissed the securities law claims under Fed.R.Civ.P. 12(b)(6) for failure to state a claim upon which relief can be granted. The linchpin of the district court's decision was what has been described as the "bespeaks caution" doctrine, according to which a court may determine that the inclusion of sufficient cautionary statements in a prospectus renders misrepresentations and omissions contained therein nonactionable. While the viability of the bespeaks caution doctrine is an issue of first impression for this court, we believe that it primarily represents new nomenclature rather than substantive change in the law. As we see it, "bespeaks caution" is essentially shorthand for the well-established principle that a statement or omission must be considered in context, so that accompanying statements may render it immaterial as a matter of law.

We believe that the bespeaks caution doctrine is both viable and applicable to the facts of this appeal. The prospectus here took considerable care to convey to potential investors the extreme risks inherent in the venture while simultaneously carefully alerting the investors to a variety of obstacles the Taj Mahal would face, all of which were relevant to a potential investor's decision concerning purchase of the bonds. We conclude that, given these warning signals in the text of the prospectus itself, the plaintiffs cannot establish that a reasonable investor would find the alleged misstatements and omissions material to his or her decision to invest in the Taj Mahal. Hence we will affirm the district court's orders.

Inasmuch as some plaintiffs filed their complaints in other districts, and the Judicial Panel on Multidistrict Litigation (the "JPML") transferred them to the district court for the District of New Jersey under 28 U.S.C. § 1407 for consolidated pre-trial proceedings (as opposed to a transfer for all purposes, such as under 28 U.S.C. § 1404(a) or 1406), the question arises whether the district court possessed authority to issue dispositive pre-trial orders terminating the cases so transferred. It seems to be widely accepted that § 1407 and the rules promulgated thereunder empower a transferee court to enter dispositive orders to terminate a case, but there is no reported case law so holding. We take this opportunity to confirm the power of the transferee court to enter a Rule 12(b)(6) dismissal.

I. Facts and Procedural History

In November, 1988 the Trump defendants offered to the public $675 million in first mortgage investment bonds (the "bonds") with Merrill Lynch acting as the sole underwriter. The interest rate on the bonds was 14%, a high rate...

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