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UNITED STATES D I S TR I CT COURT

D I S TR I CT OF NEW J E R S EY

IN RE:
DONALD J. TRUMP CASINO
SECUR I T I ES L:T IGATION
T AJ MAHAL LIT I G A T I ON

MDL 864

/1 1 JC.,

( JFG )

(Ciil Asig No .

9 0 - 0 91 9 )

O P I NI O N

APPEARAN CES:
R i chard D . Greenf i e l d , E s q .
Mark C . Rivkin , Es q .
Green f i e l d & Chim i c l e s
O n e Haverford Centre
H a v e r f ord , PA 1 9 0 4 1
S tuart Wechs l e r , Esq .
J o e l C . F e f f er , Esq.
Wech s l e r S k i rn i ck H a rwood H a l eb i an
& F e f fer
5 5 5 Madi son Avenue
New York , N . Y . 1 0 0 22
Attorneys

F J L E D
.,., 2
AT 6:30

for P l a int i f f s

C a r l D . Pop l a r , Esq .
1 0 1 0 Kings H i ghway South
Che rry H i l l , N . J . 0 8 0 34
L i a i s on Attorney for P l a in t i f f s
John J .
Clapp &
8 0 Park
New a rk ,

Barry , Esq .
E i s enberg , P . C .
P l aza
N . J . 07 102

Rchard L . Posen , Esq.

W i l k i e Farr & G a l l agher
One C i t i c orp Center
153 East 53rd Street
New York , N . Y . 1 0 0 2 2
Attorneys for the Trump D e f endants

i992

.,y-:-:1 :-:t il-:-:-:-:

MA T:-:-: . -:-:-:W A-:-:SL :-:-
H
ClERI(

...
stuart J . B a s k in , Esq .
S h e a rman & S t e r l ing
One C i t icorp Center
1 5 3 East 5 3 rd S treet
New York , N . Y . 1 0 0 22
Attorney for Merr i l l , Lynch , P i e rc e ,
Fenner & S m i th , Inc . , D e f e nd a n t

GERRY ,

Ch i e f Judge

The part i e s are present l y be fore the court upon

mot ion of de f endants Donald J .
Freema n ,

Trump ,

The Trump Organization I nc . ,

Trump T a j

Mahal

Inc . ,

and Trump Taj

P i e rce ,

with pre j ud i c e ,

Fenner and Smith

pursuant t o Fed .

reasons expressed here in ,

Taj

Mahal Funding I nc.,

and defendant Merri l l ,

( " Merr i l l
R.

Harvey s .

Maha l A s s o c i a t e s Limi ted

( c o l l e c t i vely "the Trump d e f e ndants")

Lynch ,

Robert S . Trump ,

Civ .

defendants '

Lynch" )
P.

for d i s m i s s a l
For the

12 ( b ) ( 6 ) .

mot i on is granted .

BACKGROUND
The Taj

Mahal

( "the Taj " )

i s a hote ljcasino

l ocated on the boardwa l k i n Atlantic C i ty ,

proj ect was
but was

i n it i ated by Resorts I nternat iona l ,

l ater s o l d to the Trump de fendant s .

prlmary source of fund ing for the Taj ,

Inc .

In 19 8 8,

inves tment bonds

( "the bonds" ) .

pursuant to a prospectus dated Novembe r 9 ,

prospectus" ) .

( "R e s o rts" )
as the

the Trump defendants

o f fered and Merri l l Lynch underwrote $ 6 7 4 mi l l i o n

mortgage

The

New Jersey .

in 1 4 %

f i rst

The bonds were i s sued

1988

( " the

(
After l earn ing that the Taj

intended t o f il e

Chapter 11 b ankruptcy a n d es tab l ish a r e o rga n i z at i o n p l an,

vari ous bondh o l ders

f i l ed separate comp l a ints

D i s t r i c t of New York ,

the Eastern District o f New Y o r k ,

D i s t r i c t of New Jersey ,
the prospectus

i n the S outhern
and the

a l l eg ing essent i a l l y s im i l a r c l a ims that

included m i s repres e nt a t i ons and omis s i ons which

v i o l ated federal secu r i t ies

f raud l aws .

The comp l a i n ts were

cons o l idated i n mu l t i -d i s t r i c t l it igat i o n i n t h i s court.

P l a i nt i f fs await c l ass cert i f icat i on.
In May ,
settl ement agreement ,
Unders t anding "
conduct

19 9 1 ,

the part ies reached a t e n t a t i v e

memo r i a l i z ed i n a "Memorandum o f

( " MOU") .

The MOU provided for p l a i nt i f fs to

"con f i rmatory dis covery" to determ i n e whether they

bel i eved the settl ement to b e a f a i r dispos i t i o n of the c a s e .

October 1 9 9 1 ,

In

the p l a i nt i f fs returned from con f i rm a t o ry d i s covery

s e e k ing to cancel the sett l ement dea l .

D e f e ndants moved be fore

this court for an order a l l ow i ng them to s o l i c i t approval by the

p l a i nt i f f c l as s o f the proposed s et t l ement ,
of a l l p l a i nt i f fs 1

couns e l .

ove r the obj e c t ions

We den ied that mot i o n i n a

memorandum o p i n ion and order dated November 15 ,

mot i o n to d i sm iss ,
Merr i l l

Lynch ,

1 9 91.

This

f i l ed j o i n t l y b y t h e T rump d e f endants a n d

f o l l owed.

THE COMPLAINT
Count one o f p l a int i f fs 1
the prospectus

comp l a i nt a l l eges that

" c onta ined untrue statements o f mate r i a l

facts and

omi t t e d to state mat e r i a l

facts requ i r e d to be s t a t e d therein

which were n e c e s s ary t o make the statements the r e i n not

m i s l ea d i ng , "

in v i o l a t i o n of sect i ons

Secur i t i es Act of 1 9 3 3 .
prospectus

11 ,

and

15

of the

Count two a l l eges fraud i n the

i n v i o l a t i o n of sections lO ( b )

Exchange Act of 1 9 3 4 ,

12(a)

and 2 0 ( b )

o f the

and Ru l e lOb-S promulgated thereund e r .

Count two a l s o al leges ,

a s part of the

securit i e s fraud c l a i m ,

that the prospectus conta ined f a l s e and m i s l ea d ing i n formation.

Count three ,

a breach o f f iduc i ary duty c l a im,

l odged o n l y aga inst de f endant Donald Trump .

common l aw f a l s e advert i s ing c l aim .
present s o l e l y state law c l a ims ,
on this court

is

Count f our is a

Counts three and four

wh i ch depend for the i r survival

retaining j ur i s d i ct i o n over the f e d e r a l secur i t i e s

c l a ims .

THE PROS PECTUS1

1.
A l though cha l l eng i ng the prospectus d iect l y , p l a i nt i ffs
f a i l ed to a t t a c h a copy o f i t to the i r comp l a i nt.
Indee d ,
p l a i n t i ffs d i d not even r e f erence page numbers of the p o rt i ons of
the prospectus quoted or cha l l enged in the comp l a i nt .
De fendants
have submi t t e d a comp l e t e copy o f the pro spectus on t h i s
d i s m i s s a l mot i o n , and argue that w e should cons i d e r i t even
though p l a in t i f f s f a i l e d to attach it to their p l e a d ing , despite
the fact that 1 2 ( b ) ( 6 ) moti ons to d i s m i s s are to be l im ited to
matters r a i s e d in the pl ead i ngs .
We agree , and "dec l in e to c l o s e
our e y e s t o t h e contents o f the prospectus and t o c r e a t e a rule
perm i t t i ng a p l a i nt i f f to evade a prope r l y argued m o t i o n to
d i s m i s s s imp l y because p l a i nt i f f has chosen not to a t t a c h the
prospectus to the comp l a in t or to incorporate it by r e ference . "
I . Meye r P incus & Assoc . v. Oppe nheimer & Co. , 9 3 6 F . 2d 7 5 9 , 7 6 2
( 2d C i r . 1 9 9 1 ) .
See a l s o Roma n i v . S h e a rson Lehman Hutton , 9 2 9
F . 2d 8 7 5 , 8 7 9 n . 3 ( l st C i r . 1 9 9 1 ) .
According l y , w e w i l l cons ider
the prospectus together with the pl eadings on t h i s mot i o n .
4

'

The prospectus i s a l engthy,

On the

f i rst page this notice appears

' S pec i a l Co n s i derat ions '

i n b o l d p r i nt:

investors . "

There f o l l ows a s e c t i o n

ent i t l ed " PROS PECTUS SUMMARY" which n o t e s

fac i l i ty

"See

f o r a discu s s i o n o f cert a i n f a c t o r s t o

be cons idered by poten t i a l

comp l e t i on ,

deta i l ed document .

i nt e r a l i a that

" [u]po n

the Taj Mahal w i l l be the l a rgest cas inojhotel

in A t l ant ic C ity . "

prospectus summary

Prospectu s ,

at 3 . 2

Inc luded in the

is a synop s i s of the S pec i al Cons ide rat i on s

sect i on:
Spec i al considerations

There are spec i a l cons iderat i o n s a s s o c i ated

These
w i t h an investment in the Bond s .
spec i a l cons iderat ions i n c l ud e , among others ,
the ab i l ity o f the Partnersh i p t o serv ice i t s
debt; the val i d i ty o f the s e c u r i t y o f the
Bonds; the p o s s i b l e e f fect o f appl i c a b l e
f raudulent conveyance statut e s ; the r i sks
regarding compl eting and open i n g the Taj
Mahal ; the terms of the Trump Comp l et i on
Guaranty ; potent ial con f l i c t s o f i nt e rest;
comp e t i t ion; l im i t a t i o n of l i a b i l ity ;
management o f the Taj Mah a l ; c e r t a i n
regu l atory matters , inc lud i n g matters
a f f ec t i ng ownership o f the Bonds ; absence o f
a public market for the Bonds; the
ma i ntenance o f insurance ; and the appra i s a l s
o f the Taj
Prospectus a t 4 .

Maha l .

The "Spec i a l Conside r a t i o n s "

the f o l l ow i n g not ice ,

section opens with

i n i t a l i c i z ed p r i n t :

B e f ore making a dec i s i on to purch a s e any o f

the Bonds, prospective purchas e r s should
c o n s ider c a r e f u l l y the f o l l owing factors,
among others s et forth in th i s Prospectus,
wh i ch could materially advers e l y a f f ec t ( i )
the operations o f the Partn e r s h i p and its

2.

Th i s s t a t ement i s repeated at page

5

3 1 o f the prospectu s .

ab i l i ty t o make necessary payments to the

company t o meet the debt s e rv i c e requi rements
of the Bonds and ( i i ) the security f o r the

Bonds .
Prospectus at

l isted in the

" S pec i a l

Cons iderations "

sub j ect matter heading under the

section ,

Each spec i a l cons ideration

( emphas is added ) .

synop s i s const i tutes a

" Spec i a l Cons i d e ra t i ons "

and i s exp l a ined in cons iderab l e det a i l there .

Fol l owing the

" Sp e c i a l C ons iderat i ons "

the meat and potatoes o f the prospectus ,

s e c t i on i s

" Management ' s D i scus s io n

and Analysis o f F inanc i a l Cond i t ions and Results o f Operat i ons of

the Partners h i p and the Company"
The ent i r e prospectus
potent i a l

( "Management ' s D i s cus s i on " ) .

is replete w i th c ross - r e f erences d i recting

inv e s tors to r e l a ted port ions o f the prosp ectus.

DISCUSSION

S t andards on M o t i on to Dismiss

I.

A Ru le 1 2 ( b ) ( 6 )

motion to d is m i s s for fa ilure to

state a c l a im upon which re l i e f may be granted must be d en i ed

" unless

it appears beyond doubt that the p l a int i f f can prove no

set o f facts i n support o f his c l a im which would ent i t l e him to

re l i e f . "

Scheuer v .

Rhodes ,

accordingly cons ider the

true ,

416 U . S .

Program ,

9 28

F.

favor .
2d 1 3 9 2

Exxon Co . I U . S . A .

Div .

236

( 19 7 4 ) .

We must

factua l a l l egat i ons o f the comp l a int as

construe them l i b e ra l l y ,

in p l a int i f f 's

232 ,

and draw a l l reas onab l e i n ferences

S e e Unge r v .
( 3d Cir .

Nat i o n a l Res idents Matching

199 1 ) ;

o f Exxon Corp. ,

G l ens ide West Corp.

761 F.

Supp .

v.

1100 (O.N.J.

(
.1991); Gutman v. Howard Sav. Bank,
1990); Leaty v. U.S.,

74 8 F. Supp. 254

(D.N.J.

74 8 F. Supp. 26 8 (D.N.J. 1990).

If,

applying these standards, plaintiffs cannot state an actionable

claim, the complaint must be dismissed.
We take this occasion to comment on the extent to .
which this court may consider matters outside the pleadings on a
12(b) (6) motion to dismiss.

In opposing defendants' motion,

plaintiffs have submitted considerable materials, including

affidavits, deposition transcript excerpts, and an appraisal
report, accompanied by an identifying affidavit.

Plaintiffs urge

that we may consider these materials, which are clearly matters

outside the pleadings, without converting the 12(b) motion into a
Rule 56 motion for summary judgment.

We disagree.

Plaintiffs rely on Swinn Resource Systems v.

Lycoming County,
110 S.

Ct. 1127

8 8 3 F.2d 245,

247

(3d Cir. 19 89), cert. denied,

(1990), for the proposition that extraneous

materials that "fall within the ambit of the complaint" may be

considered on a motion to dismiss.

In fact, in Swinn the

extraneous material considered -- a deposition -- was attached to

the complaint at the time of filing.

Plaintiffs here attached no

materials, not even the prospectus, to their complaint.

The

depositions and other materials they now urge us to consider as

falling within the ambit of the complaint were never submitted to
this court until plaintiffs opposed the current motion.

We do

not think that these materials fall within the ambit of the

comp l a i n t ,

a s courts i n this c i rcu i t have used that phras e . 3

The mat e r i a l s which p l a i nt i f f s urge us to consider a r e the stu f f

o f summary j udgment mot i ons ,

not mot i o n s to d i s m i s s under

1 2 ( b) ( 6 ) .

II .

Cho ice o f Law

A threshold que s t i o n is which c i rcuit ' s l a w should

be app l i e d to j udge the act i onab i l i t y o f the prospectus .

Al though the case has been c o n s o l idated in this d i s t r ict ,
the T h i rd C i rcu it ,

the unde r l y ing cases come not o n l y

within

from this

d i s t r ict but a l s o from the S outhern Di s t r ict of New York and the
Eastern D i s t r ict of New York ,

both w i thin the S econd C i rcu i t . 4

The que s t ion to be decided i s whether the law o f the Th i rd orS econd C i rcu i t cont r o l s our dec is ion .
In

case c o n s o l idated under 28 U . S . C .

1407 ,

the

law o f the trans feror forum must be g iven " c l o s e con s i d e r a t i o n , "
but the l aw o f the tran s feree

forum u l t imately contro l s.

Korean A i r L i n e s Disaster o f S ept .

(D.C.

Cir.

1, 198 3 ,

8 29

F . 2d 1 1 7 1 ,

I n re
1 17 6

1987) .
The federal courts spread across
the country owe respect to each
other ' s e f f o rt s and should strive
to avoid c o n f l icts , but each has an

F o r examp l e , cit ing S w i n n , the court in In re

3.
Corporat i o n S ecur i t i e s L i t iga t i on, 1 9 9 1 U . S . D i s t .
( Oct. 1 0 , 1 9 9 1 ) , cons idered " documents attached to
in add i t i on t o memoranda and b r i e f s " in deciding a
d i sm i s s .
4.
We note that Merr i l l Lynch i s a d e f endant o n l y
f i l ed w i t h i n the S econd C i rcu i t .
8

B e l l A t l an t i c
LEX I S 1 5 8 7 4
the comp l a int ,
m o t i o n to

i n cases

(_

obl iga t i o n to engage independent l y

i n reasoned a n a l ys is .
B in d i ng
precedent for a l l i s s e t o n l y by
the Supreme Court , and f o r the
dist rict courts w i t h i n a c i rcu i t ,
only by the court o f app e a l s for
that c i rcu i t .
Id .

Accord i ng l y ,

the l aw o f the S econd C i rcu i t must be g iven

c l os e cons ideration here ,

but does not have stare dec i s is effec t .

As d e f endants p o i nt out ,

we are faced w i t h a rel a t ively b l ank

s l ate on cert a i n cruc i a l

issues

are wel l - i ns t ructed on those

in the Th i rd C i rcu i t ,

wh i l e we

issues by the S econd C i rcu i t and

other c i rcu its as we l l .

III .

The

Federal S ec u r i t i es Fraud C l a ims

The comp l a int essent i a l l y s e ts fo rth c l a ims under

sect ion 1 1 o f the S ecur it i es Act o f 19 3 3 ,

77k ( a ) ;
amended ,

15 u.s.c.

thereunder . 5

5.

10

and s ec t i o n

S ec t i o n

15 S . C .

the S ecu r i t i es Exchange Act of 1 9 3 4 ,

78j (b) ,

15 u.s.c.

as

and rul e 1 0 b - 5 promulgated

The crux of our ana lys i s

11,

as amended ,

7 7k ( a )

is whether the comp l a int

prov ides in p e r t i nent part :

I n case a n y part o f the

reg istrat i o n statement , when such
part became e ffective , conta ined a n
untrue s t atement of a m a t e r i a l fact
or omitted to state a m a t e r i a l f act
requi red to be stated the r e i n or
necessary to make the s t a t ements
therein not m i s l e ading , any person
acqu i r i ng such security [ may b r i ng
suit aga i ns t) ( 1 ) every p e rs o n who
s i gned the reg istrat i o n s t atement;
( cont inued . . . )
9

adequately a l l eges that the prospectus contained mate r i a l

5.

false

( . . . continued)
( 2 ) every person who was a director
o f . . . or partner in , the issuer at
the time o f the f i l ing of the part
of the regi stration statement w i th
respect t o which his l i ab i l ity i s
a s s erted ;
( 5 ) every underwr iter
with respect to such secur i t y .

pert inent part:

S ection l O ( b ) ,

1 5 u.s.c.

7 8 j ( b ) provides in

It sha l l be unlawful for any

person , d i rectly or ind irectly
(b ) to use or emp l oy , in
connect i on with the purchase or
sale o f any security . . . , any
man ipulat ive or deceptive device or
contrivance in contravention o f
such ru l e s and regu l at i ons a s the
Comm i s s ion may prescribe as
necessary or appropriate in the
pub l i c interest or for the_
protect ion o f investors .
Rule lOb - 5 o f the S ecur i t i e s and Exchange
Comm i s s i on , 17 C . F.R . 2 4 0 . 1 0b - 5 , promu l gated pursuant to
section lO ( b ) , prov ides in pertinent part:
It shall be unlawful for any
person , d i rectly or indirectly, b y
the u s e o f any means or
instrument a l ity . . .
( a ) To employ any dev i c e ,
scheme , o r art i f ice to de fraud ,
( b ) To make any untrue
statement o f a mater i a l fact or to
omit to state a mat e r i a l fact
nece s s a ry in order to make the
statements made , in the l ight o f
the c i rcumstances under wh ich they
were made, not m i s l e ad ing , or
( c ) To engage in any act ,
pra ctice , or course o f business
which operates or wou l d operate as
a fraud o r deceit upon any person ,
in connection with the purchase o r
s a l e o f any security .
10

(
and mis l eading statements or omissions .

The complaint a l l eges misrepresentations with

respect to three general aspects of the pro spectus:
de fendants '

ability to service the debt on the bonds;

competition which the Taj

Mahal would f ace;

the

and the apprais a l s

relied upon b y de fendants in v a luing the T a j .

deal with future proj ections or forec a s t s .

the

A l l the s e aspects

The complaint further

a l l eges misrepresentations about the s t a t e o f Dona l d Trump's

" fina n c i a l empire , "

contained both in the prospectus and in

various media sources .

I n support o f dismiss a l ,
pros pectus so

de f endants argue that the

" b espeaks caution" that the s tatements and

omissions specified in the complaint are not actiona b l e .

Pl ainti f f s respond that no amount of cautionary l anguage can
render a f a l s e or mis l e ading omission or a f raudulent
misrepresentation not actionab l e ; that the complaint adequately
a l l eg e s such omissions and misrepresentations;

and that the

comp l a int there f o re states c l aims o f securit i e s fraud s u f f icient

to withstand a motion to dismis s . 6

5.
D e fendants have argued va rious a l t e rnative grounds f o r
dismi s s a l , specific a l l y that the comp l aint f a i l s to s atis f y the
fraud pl eading requirements o f Fed . R . Civ . P . 9 ( b ) ; that it
fails to prope r l y p l e ad the statute o f limitations; and that it
fail s to adequa tely p l e a d reliance on the a l l eged
misrepresentations , an e s s entia l e l ement to recove ry under
sections 1 1 and lOb .
Because we dispo s e o f the motion o n the
1 1 b e speaks caution 11 and other rel ated b a s e s , we do not reach the s e
a l t e rnative arguments .

11

(
IV.
Fraud

The "Bespeaks Caution" Approach to Federal Securities

Claims
We examine first the "bespeaks caution" doctrine

relied upon by defendants.

The essence of the doctrine is that

where an offering statement, such as a prospectus, accompanies

statements of its future forecasts, projections and expectations
with adequate cautionary language, those statements are not
actionable as securities fraud.

Within the past thirteen months,

five circuit courts have adopted this approach to evaluating the

actionability of

federal securities fraud claim based on future

projections contained in a prospectus or other offering

statement.
879
&

See Romani

(1st Cir.

1991);

v.

Shearson Lehman Hutton, 929 F.2d 875,

I. Meyer Pincus

Co., Inc., 936 F.2d 759,

&

763 (2d Cir.

Associates v. Oppenheimer
1991); Sinay v. Lamson &

Sessions Co., 94 8 F.2d 1037, 1040 (6th Cir.

1991); Mo orhead v.

Merrill Lynch, Pierce, Fenner & Smith, Inc., 949 F.2d 243, 245-46
( 8th Cir. 199 1); In re Convergent Technologies Secu rities
Litigation,

9 4 8 F.2d 507, 5 16 (9th Cir. 1991).

Because the trend

in the law heavily favors this approach, a comprehensive

examination of it is warranted.

A.

Origins of the "Bespeaks Caution" Approach

The "bespeaks caution" formula was first devised

in Polin v. C onductron Corp., 552 F.2d 797 (8th Cir. 1977), a

shareholder suit alleging securities fraud based on allegedly
false and misleading statements in proxy statements, annual
reports, and other documents.

In affirming a judgment on the

12

(
me r i t s f o r d e f endants a ft e r trial ,

the P o l i n court held that the

terminology employed in an annual report ,

results were "'expected '
"a

'po s s i b ility '

spec i f i cally that

to show improveme n t " and that there was

of a break-even soon , " were terms wh i c h "bespeak

caut i o n i n outlook and f a ll far short o f the a s surances required

for a f i n d i n g o f falsity and fraud . "

Id . ,

5 52 F.2 d a t 8 06 ,

n.

28 .
Subsequent l y ,
Edelst e i n ,
as s em i nal .
pla i nt i f f s '

802 F . 2 d 4 9
The court

the S econd C i rcuit decided Luce v.

( 2d Cir.

1986 ) ,

a c a s e generally regarded

i n Luce found that while some o f

allegations were s u f f i c ient to state a claim f o r

rel i e f under section lO ( b ) ,

including allegat i ons that defendants

made prom i s e s which they knew at the time to be fals e ,

other

alleg a t i ons o f intent i onal m i s representat i on as to the potent i a l

succ e s s o f t h e de fendant partnership could n o t survive a m o t i o n
to d i sm i s s .

The challenged statements at

issue were spec i f i cally

addre s s e d by caut i onary language :

the O f f e r i ng Memorandum made i t
qu ite clea r that its pro j e c t i ons o f
potent i al cash and tax bene f i ts
were " ne c e s s ar i l y specu l at iv e i n
natu r e " a n d that " ( n)o a s surance
(could ) be given that these
pro j ect i o n s ( wo u l d ] be real i z ed . "
Inde ed , the O f f e r i ng Memorandum
warned pro spect ive inve stors that
" falctual results may vary from the
pred i c t i o n s a n d the s e v a r i a t i o n s
may be material . "
We are not
inclined to impos e l i a b i l i ty on the
b a s i s of statements that " b e spe ak
caut ion . "

13

(
Id .

at 5 6

( emphas i s added ) .

The Luce court rel i e d on Po l in f o r

this propos ition .

District courts

in the S econd C i rcu i t have

f o l l owed the Luce " bespeaks caution"

approach c o n s i s t e nt l y .

See

Hagge rty

v.

( S . D.N.Y.
739 F.

Comstock G o l d Co . , L . P . ,

19 9 1 ) ;

Supp .

proj ecti ons ,

CL-A l e xanders La ing &

158 ,

162

(S .O.N.Y.

120 1-02

(S. D.N.Y.

v.

E . F.

1990 ) ;

Nurseries L i m i ted Partnership ,

199 0 )

1990)

F.

Supp .

111 ,

Cru ickshank v .

114
Go l d f e l d ,

( w i th respect to future

no l i a b i l ity under sect i o n lOb for s t a t ements that

"bespeak cau t i on " ) ; Brown

119 6 ,

7 65

Hutton Group,

Friedman v.
730 F .

735 F .

Supp .

Arizona World

Supp .

5 2 1 , ?41

(S.O. N.Y.

( wa rn i ngs and d i s c l a imers l imit degree to which investors

may reas o n a b l y rely on o f f e r i ng document as forecast o f future

performa nce ) ,
O ' B rien
227

v.

af f'd without opi n i o n ,

1989 ) ;

Stevens v.

1 9 8 0, Petrol/Coal Program 1,

( 2d Cir 1 9 9 1 ) ;

7 19

F.

Supp .

222 ,

Eguidyne Extractive Industries

694 F .

Supp .

1057,

1063

(S.O.N.Y.

( no l i a b i l ity attaches to o f fering memorandum purporting t o

b e specu l at iv e ) ;
168 ,

F . 2d 594

Nat ional Property Ana lysts Pa rtners ,

(S .O.N.Y.

19 8 8 )

927

17 1

document

Feinman v .

(S .O.N.Y.

19 8 8 )

S chulman Ber l i n & Dav i s,

677 F .

( no reasonab l e r e l i ance whe r e o f f ering

i n f o rmed that e s t imat e s were speculative ) .

Luce

v.

Ede l s t e i n a l s o h a s b e e n c it e d w i th

approval by this court .

Jersey,

Inc .

(O.N.J.

1989 )

Bondholde r s '
( Gerry ,

Supp.

In

In re Nati o n a l Sme l t i ng of New

Litigation ,

C.J.),

7 22 F .

Supp .

152 ,

17 1

this court rel ied on Luce in

14

(_

granting summary j udgment i n favor o f a third-party d e fendant

accounting firm in a f a l s e and mis leading prospectus c ase:
In a simi l a r situation , the S econd
Circuit Court of App e a l s in Luce v .
Ede l s t ein refused to find 1 0(b )
liability t o the authors o f an
o f fering memorandum , which had
warned prospective investors that
'[a ] ctual results may vary from the
predictions and thes e variations
may b e materia l . '"
The court ,
speaking through Judge Win ter ,
stated: " W e a re not inc l ined to
impose liability on the b asis o f
statements that c l ea r l y bespeak
caution . "
Id.

at 1 7 1

( c i t ations omitted ) .

The language a t issue in that

portion o f National Smel ting co ntained the f o l l owing warning:

"It

i s usua l l y the case that one or more o f the a s sumptions in a

forecast do not materialize because events and c i rcumstances do
not occur as expect ed .

There fore ,

the actual r e s u l t s durirrg the

forecast period wil l di f f er from the forecasted results ;

dif f erences may be mat e ria l . "

B.

Id.7

Recent Dev e l opments in the " Bespe aks Caution"

Most recent l y ,

the

the Firs t ,

S econd ,

S ixth ,

Approach
Eighth

and Ninth Circuit Courts o f Appe a l s have explicit l y adopted the

7.
National Smel ting is the onl y case in this circuit which has
O n l y one other
applied Luce and the " be s p e a k s caution" doctrine .
::: a s e in this circuit has r e f e rred to the " b espeaks caution"
approach of Luce v. Ede l s tein .
See Fitch v . Radnor Industries,
In
Ltd . , 1 9 9 0 U . S . Dist LEXIS 1 3 023 ( E . O . Pa . Octob e r 2 , 1 9 9 0 ) .
Fitch , the court refe rred to Luce but did not reach app l ication
f it because the court found dismis s a l warranted on Rul e 9 ( b )
grounds o f inadequat e l y p l ead fraud .
15

" bespeaks caut i on" approach to securi t i e s fraud c l a ims.8

Romani

v.

Shearson, Lehman and Hutton ,

In

the p l a i n t i f f s had a l l eg e d

that def endants fraudu l ently induced t h e m i n t o inves t i ng i n a

hors e - breeding

farm " through mis repres entat i ons and omi s s i on s i n

the o f f e r i ng m a t e r i a l s that f a l s e l y i n f l ated the partnershi p ' s

finan c i a l potent i a l . "

Roman i ,

9 2 9 F . 2d at 8 7 6 .

Plaintiffs

c l a imed that several mat e r i a l adver s e facts were del i b e ra t e l y

withhe l d by de f endants from t h e prospectus .
howeve r ,

The F i rs t C i r cu i t ,

p l a c e d d i spo s i t ive weight on th i s statement i n the

prospectus:

" [t]here can be no a s surance tnat the investment

obj ectives of the Partnership w i l l b e o b t a i n ed . "

This d i rectly led the c ourt to h o l d that

Id.

at 8 7 9 .

" a l though the o f fer ing

mat e r i a l s were opt i m i s t i c about the prospects for [the b u s i n e s s

enterp r i s e ] ,
investors

t h e documents unque s t i on a b l y warned poten t i a l

i n a meaningful way that economic cond i t i ons

horse-breed ing

industry were uncerta i n .

wh ich

' bespeak caut ion ,

' clearly

secu r i t i e s fraud c l a ims are made

i n the

Documents such a s th i s ,

are not the s t u f f o f which

. . . ."

Id.

P l a i nt i f fs
8.
The Th i rd C i rcu it has yet to cons ide r the i s sue .
have argued that a T h i rd C i rcuit c a s e , H e rskow i t z v.
Nutri/Sys t em , 8 5 7 F . 2 d 17 9 , 1 8 5 ( J d C i r . 1 9 8 8 ) , " rej ect s " the
" be s p e a k caut i o n " argument rel i e d upon by defendants .
However ,
Herskowitz nev e r addre s s e d the " b e speaks caut i o n " app roach and
Moreove r , in
there fore cou l d not have and did not re j ect i t .
Herskowitz the truth or f a l s ity o f an expert o p i n i on w a s at
The
i s su e , rather than management's forecasts and predict i o n s .
ana l y s i s for each is neces s a r i l y d i f f erent , because the l atter
dea l s m e r e l y w i t h specu l at i o n a s to future events and r e s u l ts ,
cond i t i o ne d on factors o f uncerta i n r e s o l ut i o n , rath e r than
e x i s t ing factual in forma t i on .
16

(
S im i l a rl y ,
Oppe n heimer

&

in I .

Meyer P incus

&

A s s o c i a t es v .

Co . , the S e c ond C i rcui t " decl ined to impose

liabil ity"

on the b a s i s of

" s tatements c o n t a i ned w i t h i n the

prospectus

[wh i ch )

'bespeak caut i o n , '

c l e a rly

encouraging opt imism . "

rather than

The court accord i ngly ruled that t h e

language o f t h e prospectus ,

"when r e a d i n context ,

mat e r i a l ly m i s l e a d i ng . "

Meyer P incus ,

I.

i s not

9 3 6 F . 2d a t 7 6 3 .

The

court a l s o cons idered important the fact that " the f i rs t sentence
of the P r o s p ectus Summa ry ,
qua l i f i ed

which states that the summary

'is

i n i t s enti rety b y re ference to the more deta i l e d

in forma t i o n

inc luded e l s ewhere i n the pro spectus , '

unamb iguous ly

commun i c a t e s the importance o f read ing a l l relevant mate r i a l

contained w i thin the prospectus . "
In S i nay v .

Lamson

Id .
&

(Empha s i s added . )

S e s s i o n s Co . ,

the S i xth

C i rcu i t a f firmed the d i sm i s s a l o f an a c t i o n a l l eg i ng secur i t i es

fraud under a fraud-on-the-market theory .

C i t i ng Pol i n ,

the

S i nay court held spec i f i c a l l y that " (e ) conomic proj ections a r e

not act i o na b l e if they b e s p e ak caut ion . "

104 0 .

S inay ,

948 F . 2d at

The court cont inued ,

[ i ] n determi n ing whether the
statements are a c t i o n ab l e , the
court must scrut i n i z e the nature o f
the statement to determ i n e whether
the statement was f a l s e when mad e .
Wh i l e a n a l y z ing the nature o f the
statement , the court mus t empha s i z e
whether the " p red i c t i o n suggested
re l i ab i l ity , bespoke caut i o n , was
made in good f a i th , or had a sound
factual or h i s t o r i c a l b a s i s . "

17

Id .

App lying t h i s standard ,

( C i t a t i ons omitted . )

the court held

that the "qu e s t i o ned statements herein were phrased with

su f f i c i ent cautionary l a nguage."

Id .

Indeed ,

each cha l l enged

statement was accomp a n i ed or add r e s s ed by "cautionary language . 11

Add i t i ona l ly ,

the S i nay court ci ted to the propo s i t i o n that

" fraud by h i nds ight , " the attempt to imp o s e l i a b i lity on

management

for unrea l i z ed economic predictions ,

c i t i ng Schwartz v .

actionab l e .
Supp .

795 ,

799

(S.O.N.Y.

i s not

Novo Indu s t r i, A/S ,

658 F .

1987 ) .

The Eighth C i rcu i t r e i n f o rced its pos i t ion on the

"bespeaks cauti on" doctrine when it a f f irmed summary j udgment for
Merr i l l Lynch .

d e f endants in
Moorhead v .
I
had brought a secur i t i e s
mis represent a t i ons

P l a i n t i f fs

in Moorhead

fraud c l a im for a l l eged

in a bond o f f e r i ng sttement.

that de f endant had " made misrepresent a t i ons ,

They argued

omitted mat-er i a l

facts and made economic predict ions w i th reck l e s s dis regard f o r

the i r va l idity , " urging the appe a l s court to reverse the f i nding
that any m i s r e p resentations or omi s s i o n s were d i s c l o s e d by
spec i f i c caut i onary l anguage in the chal l enged docume n t .
Moorhead ,

949

F . 2d at 2 4 5 .

court's h o l d i ng ,

However ,

in a f f irming the d i st r i ct

the app e a l s court agreed that " p l a i nt i f f s could

not base a federal secur i t i e s fraud c l a im on any

m i s represent a t i on or om i s s ion in the f e a s i b i l ity study wh ich was
addressed by the repeated ,

spec i f i c warnings of s ign i f ic ant r i s k

factors a n d t h e d i s c l o sures o f unde r l y ing factual as sump t i on s

18

(
Id .

a l s o conta ined therein . "

at

24 5-4 6.

The c a u t i o n a ry l anguage

cons idered by the Moorhead court incl uded the f o l l ow i n g:

We bel i ev e that the underlying
assumpt i ons provide a reasonab l e
b a s i s for management ' s f orecast.
However , some assumptions
inev i tab l y w i l l not mate r i a l i z e and
unan t i c ip a t ed events and
c i rcumstances may occur; there f o r e ,
the actu a l results achieved during
the forecast per i ods w i l l vary from
the forecast and the var i a t i on s may
The accompanying
be mate r i a l .
f inan c i a l forecast ind icates that
su f f i c i ent funds w i l l be generated
to meet ( expenses ] , including the
debt s e rv i ce requi rements . . . .
However , the ach i evement o f any
f i nanc i a l fo recast is dependent
upon future events , the occurrence
of which cannot be assured.
Id. ,

94 9 F . 2d at 2 4 6 n .

( empha s i s added ) .

The document a l so

conta ined several other examp l e s o f " n o represent a t i o n s or

as surances can be made "
F ina l l y ,

l a nguage.

the N i nth Circuit j o ined

" bespe aks caution" approach.

Techn o l ogi es highl ighted the
statements in context ,

Id.

The court in I n re C o n v e rgent

importance o f v ie w i ng the cha l l enged

n o t ing that " to preva i l ,

must demonstrate that a p a r t i c u l a r statement ,

of all

the

in adopt ing the

the p l a i n t i f f s

when r e a d i n light

i n f ormat i on then ava i l a b l e to the market ,

to d i s c l ose particular in f o rma t i o n ,

mis l e ad ing impres s i on. "
( empha s i s added ) .

conveyed a f a l s e o r

Convergent Techn o l ogi e s ,

P l a i nt i f fs

o r a failure

948

F 2 d at 512

in Converge nt Techn o l ogi e s had

argued that i t was a v i o l at ion o f secu r i t i e s

fraud l aws

de fendants to omit interna l corporate proj ections

19

for

f rom the

(
o f f er ing statement .

However ,

court re l i ed on Vaughn
( 9 th C i r .

1980) ,

v.

in a f f irming summary judgment ,

T e l edyne,

Inc . ,

6 2 8 F . 2d 1 21 4 ,

the

1 22 1

wh ich h e l d that 11[ i ) t i s j us t good general

business pract i c e to make such pro j e c t i o n s for internal corporate

use.

The r e is no ev idenc e ,

however ,

that the e s t imates were made

w i th such reasonab l e certai nty even to a l l ow them to be d i s c l osed

to the pub l i c . 1 1
original ) .

Converge nt Techn o l ogi e s at 5 1 6

Addit iona l l y ,

( empha s i s i n

regarding caut ionary language ,

court found that the chal l enged prospectuses

general i z ed statements o f r i s k . 1 1

Id .

the

11provided more than

These included statements

that future success was dependent on several enumerated factors

of uncertain resu lt ,
the l i ne ,

warnings of 1 1 unan t i cipated prob l ems 1 1 down

and notice that plaint i f f s were inves t i ng in a new , _

unt r ied venture .

C.

Id .

Considerations in Adopt ing the

Appr o ach

11 Bespeaks Caut i o n "

Plaint i f f s respond to t h i s body of securities

f raud law by arguing that the only que s t i o n properly b e f ore this
court on a mot i on to d i s m i s s

is whether the comp laint a l l eges

f a l s e and m i s l eading statements or omi s s ions ,

m i s repres entat ions .
such c laims ,

or

They argue that they have adequa t e l y p l ed

and that the caut i onary language

cannot insulate d e fendants

in the prospectu s

from liab i lity or prec l ud e p l a i nt i f f s

from stating a cognizab l e c l a im .

Plaint i f fs are correct in stat ing that a
11 p roject i o n that is issued without a reas onab l e bas i s
20

is an

(
untrue stat ement and a c t i onab l e under

L i t iga t i on ,

89 0 F . 2d 628 ,

645-46

Gagnon ,

766

F . 2d 770 ,

( 3 d C ir . ) ,

(1985 ) ;

Urbach v .

Say l e s ,

and Rul e 1 0b-5 i f

In re Cra f tmat i c Secur i t i e s

made know i n g l y or reckl e s s l y . ..

776

10 (b)

779 F .

( 3d Cir .

1989 ) ;

cert .

Supp .

E i s enberg v .

den i ed ,

351 ,

355

474 U . S .

(D.N.J.

946

1 9 91 )

( 11 pro j ec t i o n s or est imates can ground a fraud c l a im under the

secur i t i e s

The same i s true for sect i o n 11 c l a ims .

l aws11 ) .

supreme Court has recently c o n f i rmed that

The

11Statements o f reasons ,

o p i n i o n or b e l i e f " regarding proj e c t i ons are actiona b l e under the

secur i t i e s
Sandberg ,

fraud prov i s ions .

111 s.

Ct .

27 4 9 ,

However ,
which 11 b e s p e a ks caution11

S e e Virgi n i a Bankshares, Inc v .

27 5 8

(1991) .

de fendants m a i n t a i n that a prospectus

d i s p l aces a m i srepresentation c l a im.

They argue that the secur i t i e s fraud l aws are concerned w i t h

management ' s d i s c l osure ,
that so

l ong as

not management ' s bus i n e s s j udgment;

fu l l d i s c l osure is made ,

and

unre a l i z ed future

proj e c t i o n s cannot be act ionab l e a s secur i t i e s fraud .

Thus ,

we must determine w h i ch comes f irst

con s idera t i on o f this c a s e :

in our

the cautionary l anguage o f the

pro s p e c tu s ,

or the a l l egations o f misrepresentat i ons

comp l a int .

I f any a l l eg a t i o n o f f a l s ity or m i srepre s e n t a t i o n can

survive a mot ion to d i s m i s s ,

11bespeaks c a u t i on11
However ,

then l anguage in a prospectus which

as to future forec a s t s i s irrelevant .

i f adequate cauti onary l anguage

equ ival ent o f

pred i c t i o n s ,

in the

in a prospectus i s the

ful l d i s c l osure perta i n i ng to forecasts and

r e l i eving de fendants o f securities

21

fraud l i a b i l ity ,

(
then p l a i nt i f fs '

c l a ims are not act i on ab l e .

I n ess ence ,

the

ana lys is would subsume or obviate the a n a ly s i s

"bespeaks c a u t i on"

regarding a d e quate a l l egations of f a l s i ty o r m i s representati on.

We thi nk that the l a t t e r v i ew is prec i s e l y how the
"bespeaks caut ion " doctrine should be a p p l i ed .
C i rcuit has held ,

As the Eighth

" p l a int i f f s could not b a s e a federal secu r i t i e s

fraud c l a im o n any m i s representa t i on o r om i s s i on i n the

feasib i l ity study which wa s addressed by the repeated,

specific

warn ings o f s ign i f icant r i s k factors and the d i sclosures of

underlying factual a s s umptions a l s o conta1ned there i n . "
Moorhead ,

949

F . 2d at

24 5 - 4 6 (empha s i s added ) .

I n cons i d e r i ng

whether a comp l aint sta tes a c l a i m under e ither sect i on 10(b )

sect ion 1 1 ,

"we exam i n e t h e prospectus together with the

a l l egat i ons conta ined on the face of the omp l a int . "
Pincus ,

936

or

F . 2 d at 7 6 2 .

are not read

Thus ,

I.

Meye r

the a l l egat i on s o f the comp l a int

in i s o l a t i on; they cannot be separated from the text

of the prospectus ,

inc lud i ng whatever c a u t i o n a ry l anguage appe a rs

in that text.
Moreover,
are act ionab l e ,

" [ i]n determ i n i ng whether the s t atements

the court must scrut i n i z e the nature of the

statement to determine whether the s t a t ement was

Wh i l e analy z i n g the nature of the statement ,

f a l s e when made.

the court must

empha s ize whether

'the predict i on sugge s t e d re l i ab i l ity ,

cau t i on ,

in good fa ith ,

w a s made

hi storical b a s i s . ' "

S outh U t il s .

Inc . ,

or had a sound factual or

S i nay at 1 0 4 0 (quot i ng I sgu i th v .

847

F . 2d 18 6 ,

bespoke

204

22

( 5th C i r . ) ,

cert .

M i ddle
denied ,

(
48 8 U.S .

926

( 19 8 8 )

( emph a s i s added ) .

Thus ,

whether a n o f f e ring

statement such as a prospectus "bespeaks caut i o n "

relevant to whether it i s a c t i onab l e .

I ndeed ,

i s d i re c t l y

t h e c o u r t " must

emphas i z e " whether a statement " b espoke caut i o n , "

id. ,

indicat ing

that such a factor is at the l ea s t a powerful c o n s i d e r a t i o n and

may even be d i sp o s i t ive.
Thus ,

the "bespeaks cauti o n " approach answers in a

The " be s p e a k s

d i s p o s i t ive way a mis repres entat ion c l a im .

caut io n 1 '

a n a l y s i s subsumes the m i s representa t i o n analys i s .

reasona b l e

No

i n f erence c a n be drawn i n favor of a p l a i nt i f f that a

document o r statement which bespeaks caution a s to

future

forecasts cont a i ns a c t i onab l e m i s representat ions.

Th is approach i s also cons istent w i th the current
state of T h i rd C i rcu it l aw in this area.

Under Cra ftma t i c ,

statement is sued without a reasonab l e b a s i s is untrue " i f made

knowingly or reckl e s s l y . 1'
added ) .

Cra ftmat i c ,

8 9 0 F . 2 d at 6 4 6

( empha s i s

A sta tement a c c ompan i ed by l anguage wh i ch " b e sp e a ks

caut i o n " cannot be s a i d to have been made " reckl e s s l y . "

Thus ,

it

i s necess ary f i rst to cons ider the caut i onary l anguage o f a

prospectus ,

and to cons ider the challenged statements

_

in context ,

i n determ i n i ng whether a comp l a int a l l eges acti onab l e omi s s i on s

or m i s representat ions .
P l a i nt i f f s a l s o urge us to refra i n from f o l l ow ing
the gu idance of Luce and other s imi l ar cases ,
argument on G r i f fen v .
(S.D.N.Y.

199 0 ) ,

McN i f f ,

and Landy v .

744 F .
Mitche l l

23

Supp .

r e l y i ng f o r this

123 7 ,

125 3 - 5 4

Petro leum Technology

(
C o rp . ,

7 3 4 F. Supp .

60 8 ,

619

(S . D . N . Y .

1990 ) .

P l ainti f f s

maintain that these c a s e s rej ected the "bespeaks caution"

Gri f f e n and Landy did not rej ect t h a t

approach .

I n fact ,

approach .

They mere l y distinguished the

facts b e f o r e them from

tho s e a t i s sue in Luce and other cases which applied the

"bespeaks caution" a n a l y sis to

find a c l aim n o t actiona b l e .

The

Gri f fen court even acknowledged that

warnings and discl aimers may limit
the extent to which an inv e s t o r can
rely on the o f f e ring documents a s a
forecast o f future events .
Dismis s a l o f s e curities f raud
c l aims may be appropriate where the
o f fering documents specif i cally
warn p l ainti f f s not to rely on the
al leged m i s representa t i o n s made by
defendants , thus making any
subsequent r e l iance unj us t i fie d .
G r i f f en ,

744

F.

Supp .

at 12 53 .

Thus ,

pl ainti f f s '

a rgument that

the s e two cases preclude our application of the "be s p e a k s

c a u t i o n " d o c t r i n e must fail .
Pl ainti f f s a l s o contend tha t ,

were this court to

a l l ow s t a t ements such as "no a s surances can b e given"

d e f endants o f liability ,
any practical e f f ect . "

"the securities laws would c e a s e to have

They appeal to our s e n s e o f " f airness , "

cont ending that " [ i ] t is admirable to bespeak caution .

required to bespeak the who l e truth .

approach ,

I t is

Descr ibing a n i nv e s tment a s

s p ecul ative i s not a license t o misrep resent material

This

t o relieve

f ac t s . "

is a mis r eading o f the "bespeaks c a ution"

and indeed of the p o l icies behind the securities

l aws thems e lves.

The

fraud

"bespeaks caution" approach demands far

24

more than merely describing an investment as speculat ive .

neither immunizes

It

fraud nor nu l lifies the securities fraud

These l aws are intended to

protections o f sections 11 and l O b .

ensure that investors have a l l the i n f o rmation they need i n order

to make educated investment dec i s i o n s .

We think that the

" b espeaks caution" doct rine is its e l f an endorsement o f that

fundamenta l concept of the secu r i t i e s l aws,

the touchstone of

which is dis c l osure .

We do note the troubling pos s i b i l ity that the
"bespeaks caution" doctrine wil l encourage management to conceal
d e l ib e rate m i s representations beneath the mant l e of broad
cautionary l anguage .

It is

for t h i s r e a s on that the

" be sp eaks

caution" doctrine app l i e s only to prec i s e cautionary

l anguage_

which direc t l y addre s s e s its e l f to future projections ,

or forecasts
investment is

in a prospectus .

" risky,"

e s t imates

A b l anket warning that the within

for examp l e ,

w o u l d be insu f f i c i ent to ward

against a federal securities fraud c l a im .

Nor would our holding

here app l y t o cautionary l anguage regard ing actual f a c t s ,

such as

past per f o rmance of an existing inv e s tment or the contents o f

appra i s a l s o r other expet reports r e f e renced in the prospectus.
Having estab l i shed the l egal framework in which to
ana l y z e the p rospectus at issue here,
framework .

25

w e now turn to app l y that

c
v.

P l a intif f s ' F irst C l a i m -- The Abi l i ty of Partnership

to S ervice the Debt on the Bonds
P l ainti f f s'

primary compl aint

is that d e fendants

did not have a rea s o n ab l e bas i s for b e l i ev ing that it could

serv i c e the d e b t on the bonds ,

and that d e f endants made various

omis sions or misrepresentations with respect to their ab i l ity t o

do so .

We ther e f ore begin by perusing the port i ons o f the

prospectus which relate to this c l a im .

A.

The Prospe ctus

The " S pecial Cons ideratio n s "

s e c t ion d i s cu s s ed

suora contains several cautionary sub-sections ,

the first o f

which is entit l ed " Ability o f the Partnership t o Service Debt . "

This sub-se c t i on inc l udes the f o l l owing cautionary la nguage:
Upon consummation of the o f f ering of the
Bonds , the Partnership will hav outs tanding
indebtedne s s in the aggregate prin c i p a l
amount o f $675,000,000 . . . .
T h e c a s ino
business in A t l an t i c City , New Jersey has a
s e a s onal nature of which summer is the peak
The ant i c ipated opening date o f the
sea s on .
Taj Mahal i s on or about February 15 , 1990.
S in c e the third interest payment date on the
Bonds occurs be fore the s umme r s e a s o n , the
Partnership wil l not have the bene f i t o f
rec eiving peak season cash f l ow prior to the
third interest payment date , w h i c h coul d
adversely a f f e c t its
o n the Bonds .

abi l i ty

to

pay

interest

The s o l e busin e s s o f the Partnership

wil l be to a cquire , construct and operate the
Taj Mahal and its ancil lary f a c i l itie s .
The
Taj Mahal has not been comp l e t e d and ,
The
accordingly, has no operating hist ory .
Partnership , there fore , has no h i s tory o f
earnings and i t s operations wi l l be sub j ect
to a l l of the risks inherent i n the
e s tabl i s hment o f a new business enterprise.
Accordingly, the ab i l i ty o f the Partnership
to s e rvice its debt to the company i s

26

completely dependent upon the succe s s o f that

operation and such success wi l l depend upon
financial , business, competi t i v e , regulatory
and other factors a f fecting the Taj Mahal and
the casino industry in genera l , as w e l l as
prevailing economic condit i o n s .
See

"Cap ital i z a t i on11 and 11 Bus i n e s s o f the

Pa rtnership . "

The Taj Mahal will be the largest

cas ino/hotel complex in Atlantic City, with

approximat ely twice the room capacity and

ca s i no space o f many of the e x i st ing
c a s inojhote l s in Atlantic C it y .
Neither the
Pa rtnership nor any other c a s ino/hotel
operator has had experience o p e rat ing a
complex the s i z e of the Taj Mahal in A t l a n t i c
c i ty .
Consequent ly , no assurance can b e
given that, o n c e opene d , t h e T a j Mahal w i l l
be p ro f itable or that it w i l l generate c a s h
f l ow suffici ent t o provide for the payment o f
t h e debt serv i c e o n the Note andjor any

future borrow ings by the Partnership .

Prospectus a t 8

( empha s i s added ) .
The next sub - s ec t i on i n

" S pe c i a l Cons i derations , "

ent i t l ed " S ecurity for the Bonds , " conta ins the f o l l o w i ng
pert i nent s t a tements:
I f an Event o f Default occurs p r i o r to
comp l etion of the Taj Mahal, upon fore c l o sure
a n d sale o f the C o l l ateral , t h e re wou l d not
b e s u f f i c i ent proceeds to pay the p r i n c i p a l
o f, a n d accrued interest on , the Bonds . . . .
I n addition, i f an Event o f Default occurs
with respect to the Bonds a f t e r comp l e tion o f
the Taj Mahal , there can b e n o assurance that
the l iquidation of the Co l l ateral would
produce proceeds in an amount which would be
s u f f i c i ent to pay the principal o f , and
a c c rued interest on , the Bonds .
See

" D e sc r iption o f t h e Bonds - - S ecur i t y "

" -- Non-recours e . "

and

In any foreclo sure sa l e o f the Taj

Mahal, the purchaser would n e e d to be
l i c e nsed to operate the Taj M a h a l under the
New Jersey Cas ino Control Act and the
regul ations promulgated thereunder
27

Because potential bidders must sati s f y such

requirements , the number o f p o t ential bidders
i n a forec l o su r e sale would b e less than in
f o r e c l o sures o f o t h e r types o f facilities and
such requi rements may delay the s a l e o f , and
may adve r s e l y a f f ec t the s a l e s price f o r , the
Taj Mahal .
The ability to repos s e s s and

dispose of the C o l l a t e r a l upon acce l e r a tion

o f the Bonds i s like l y to be significantly
impaired or d e l ayed by app licable bankruptcy
law i f a bankruptcy c a s e were to be commenced
by o r against the Partnership prior t o the
repos ses sion or disposition o f the C o l l at e r a l
by t h e Tru s t e e o r the Bondh o l ders .

Prospectus at 9

( emphasis added ) .
Fol l ow ing the " S pecial Cons iderations "

the

s ection is

" Management ' s Discussion" p o rtion o f the prospectus .

It

states in pert inent part that:

After the comp l e tion and opening o f the
Taj Mahal , the Partnership wil l rely on cash
generated from the Taj Maha l ' s operations to
'
s e rvice its debt and provide for anticip ated
capital requireme nts .
The Partnership
b e l ieves that funds generated from the
ope ration o f the Taj Mahal wi l l be suf ficient
to cover all of its debt service ( interest
No assurance can b e given,
and principal ) .
however,
meet the

that actual operating results will

Partn e r s hip ' s expectations .
See

" S pecial Considerations - - Ability o f the

Partne rship to S ervice Debt" and " S pecial
C o n siderations - - Risks Regarding Compl eting
and Opening the Taj Mahal -- Consequences o f
Delay . "
Prospectus at 2 8

( emphasis added ) .

p o rtions o f the prospectus

The s e excerpts repr e s ent the

implicated by p l ainti f f s '

cha l l enge

that de fendants vio l at e d federal secur ities l aws by fai l i ng to

i n f o rm that the partnership cou l d not s e rvice its debt .
examine them in l i ght o f the l a w set f o rth supra ,

28

We must

in o r d e r to

determine whether pl aint i f f s have stated a c l aim upon which

r e l i e f may be granted .

B.

Appl i cation of the " Bespeaks Cautio n " Approach

The heart of p l ainti f f s '

p o s s e s s e d no reasonable b a s i s
that they b e lieved the Taj

c l aim is that de f e ndants

for the statement in the prospectus

could generate suf ficient funds to

cover a l l the debt service on the bond s .

They b a s e this c l aim on

one sent ence buried in the middl e of the prospectus:

" Th e

Partnership b e l i eves that funds generated from the operation o f

the T a j Mahal wil l b e suf f i c i ent t o cover a l l o f its debt service
( i nterest and princip a l )
statement

. 11

Pl ainti f f s have extracted one

l one

from this comprehensive document and attempted t o

persuade the court that standing a l one and read out o f context it
is s u f f icient to state a federal securities fraud cl aim .

We are

not s o persuaded .
The above- quoted l anguage from the prospectus is a
striking examp l e of a document which t ru l y " bespeaks caution . "
Indeed ,

this prospectus

" ' virtua l l y bris t l e [ s ]

with warning s '

as

to the extrem e l y risky nature of the investment described herein ,

as we l l a s the high ly specul ative nature o f the memoranda ' s
proj e c t i ons a s to future results . "
( quoting CL-Al exanders Laing ,

Hagge rty,

765 F . Supp .

at 1 1 5

7 3 9 F . Supp . at 162 ) .

In stating their " n o r e a s onable basis " cl aim ,

p l ainti f fs have utterly disregarded the entire " Special
Considerations" section of the prospectus ,

29

as well a s the

language immediately f o l l owing the cha l l enged statement ,

read s :

"No as surance c a n be given ,

howeve r ,

whi c h

t h a t actual operating

results w i l l meet the Partnership ' s expectat i on s . "

Thus ,

p l a i n t i f f s have attempted to base the i r c a s e on a s t a t ement which

i s in fact d i rectly addres s ed by spec i f i c ,

caut ion a ry l anguage

throughout the prospectus and immed i a t e l y f o l l owing the

cha l l enged statement .
P l a i nt i f f s have f a i l ed to con f ront the f a c t that
the c o ntext o f an a l l eg e d l y f a l s e and m i s l ea d i n g s t a t ement i s a
The actionab i l i ty o f an i s o l ated

cruc i a l cons iderat ion .

s tatement in a cha l l enged prospectus depends upon its

This

i s as true in a

s ecur i t i es
a

fraud c a s e .

fed e r a l securities

( 19 7 6 )

" bespeaks caut i o n "

TSC I ndustr i e s ,

case a s

framework .

in any other

S o l itary statements a l one cannot support

l aw c l a im when read out o f context .

Inc .

v.

Northway,

I nc . ,

( i n section l 4 a proxy statement c a s e ,

426 U . S .

See,

4,

449

m a te r i a l ity i s

determined b y the " tota l mix" of in format i o n ava i l ab l e t o the

investor ) ;

I.

Technologies ,
cauti on .

Meye r P incus ,

9 3 6 F . 2 d a t 7 63 ;

9 4 8 F . 2 d at 5 12 .

As a matter o f l aw ,

Convergent

Here the context f a i r l y s c reams

we f ind that no r e a s o n a b l e investor

could have been m i s l ed by the s o l e sentence ,

b u r i e d in the middle

of the prospectus and preceded by pages o f pert inent warnings ,

which p l a i nt i f f s cl a im was m i s l eading .
the prospectus

its e l f s h i e l d s d e fendants

is a care f u l l y crafted ,

U l t im a te l y ,

from l i ab i l ity ,

f u l l y d i s c l os i ng document .

30

the text o f
for it

(
I n Moorhead ,
case ,

a case factu a l l y s im i l a r t o t h i s

the d i strict court rej ected p l a in t i f fs '

federal

secu r i t i e s

fraud c l a im because the cha l l enged document "contained a number

of r i s k s t a t ements ,

deta i l ed caut ionary l anguage and d i sc l osures

about the underly ing economic assump t i o n s ,

have a f fected
Moorhe a d ,
d i f f erent .

( management ' s )

9 4 9 F . 2 d at 2 4 5 .

any of whi c h could

ab i l ity to pay back the bonds . "

We think that the c a s e a t b a r i s no

S uch i n c l us i ons speak d i r e c t l y to the r e a s o n a b l e

b a s i s o f management ' s b e l i e f s .

Certa i n l y management i s not

requ i red to o f fer investments pursuant to a prospectus which

di sparages the very v i a b i l ity of that investment .
In fact ,

the prospectus does s e t forth the b a s i s

f o r management ' s "be l i e f" in i t s a b i l i t y t o meet the debt

s e rv i c e :

the AGI Report ,

the appra i s a l

of the future worth o f

the T a j .

P l a inti f f s a l l ege that this a p p ra i s a l

itse l f w a s made

without a " re a s o n a b l e b a s i s , " and there f o re management ' s re l ian c e

o n it a l s o h a s no reas onab l e ba s i s .

Howeve r ,

w e f ind that this

attenuated l inkage cannot support a c l a im o f s e cur i t i e s fraud .

I n attemp t ing to d i st in gu i sh Roma n i ,
P i ncus ,

S i n ay ,

Moorhead and Convergent Techn o l ogi e s ,

argue that wh i l e the a l l eged m i srepre s e n t a t i o n s

were d i rectly contradicted b y d i s c l a i me r s ,

I.

Meyer

plaintiffs

i n tho s e c a s e s

t h e same i s not true

in this ca s e .

Upon cl o s e inspection o f the pro spectus here ,

cannot agree .

I f anythi ng, th is prospectus

we

inc ludes even more

;pec i f i c a l l y t a i l ored d i s c l a imers d i r e c t l y address ing each

cha l l enged s t a tement ,

than d i d the o f f e r ing mate r i a l s a t i s sue i n

31

(
Th i s d i s t inction must ther e fore

those f ive appellate dec i s ions .

be rej ected .

c.

Fraud by H i n d s ight
We are wary ,

of " fraud by h i nds ight . "

too ,

o f the dangers r a i s e d b y claims

Monday morn i n g quarterbacking cannot

pres ent a c t i onable secur i t i e s

fraud cla ims .

"The f a c t that a

pro j ect i on or estimate turned out to b e incorrect ,

a l on e ,

does not even raise an i n f erence that the s t a t ement was

f raudulent when made . "

(D.N.J.

stand ing

199 1 ) .

Urbach

v.

S ayles ,

779

F.

Supp .

351,

358

I ndeed ,
( t ] he story in this comp l a int i s
familiar i n secur i t i e s l i tiga t i o n .
At one time the f irm bathes itself
in a favorable ligh t .
Later the
f irm d i sclo s e s that things are less
rosy .
The pla in t i f f contends that
the d i f ference must be attributable
"Must b e " i s the
to fraud .
ical
phra
s e , for the complaint
crit
o f fers no i n f ormation other than
the d i f ferences between the two
statements o f the f irm ' s cond i t i on .
Because only a fraction o f
f inanc i al determinations re flects
fraud , pla int i f f s may not pro f fer
the d i f ferent f i nancial s t a t ements
and rest .
Investors mus t po int to
some facts suggesting that the

Pla i nt i f f s have impliedly argued that the facts o f t h i s c a s e

9.
a r e more closely analogous to t h o s e in Gr i f fen and Landy , which
r e f u s e d to app l y Luce , than to those i n the five recent appellate
The court in Gri f fen and Landy re fused
We d i sagree .
d ec i s ions .
t o app l y the cautionary language approach because the alleged
m i srepresent a t i ons at i s s ue were not d irectly contrad i ct e d by any
cauti onary l a nguage .
That is in no way s imilar to the c a s e at
bar .

32

d i f ference 1 s attribut ab l e to
fraud .
D i Leo

v.

denied ,

&

Ernst
111

s .

9 0 1 F . 2d 624 ,

Young ,

Ct .

347

antic ipated p r o f its,

( 1990 ) .

627

( 7 th C i r . ) ,

In the c a s e a t b a r ,

fraud . "

Po l i n ,

though faulty ,
552

F.

S upp .

795 ,

799

does n o t ,

F . 2d at 805 .

not an a c t i o n a b l e c l a im .

1987)

but economi c

without more ,

In s h o rt ,

See S chwartz v .

(S.D.N.Y.

" d e f endants

It i s true that de fendant s '

not losses .

roseate economic ant i c i p a t i ons were do omed ,

progno s t i c a t i on ,

c e rt .

amount t o

fraud by h in d s ight i s

Novo Indust r i A/S ,

( " [ p ] l a int i f f

65 8

f a i l s t o o f fe r a

s i ngle obj ect ive fact to suggest that the pre d i c t i o n was other
than an hon e s t l y h e l d v i ew
a l l eg ing

. . . .

' f raud by hinds ight '

the comp l a int i s an examp l e o f

and the re fore not a c t i o na b l e under

lOb and Ru l e l O b - 5 " ) .

Moreove r ,

the success

of the Taj

the prospectus gave f a i r warn ing that

and the partnersh i p ' s ab i l ity to s e rv i ce

the debt on the bonds depended ent i r e l y on numerous future

cond i t i ons and occurrences , many of them out of d e fendant s '
contro l .

Thu s ,

the proh i b i t i on a g a i n s t fraud b y hinds ight c l aims

and the " bespeaks caut i o n " doctr ine go hand in hand .
P l a inti f f s have r e l i e d heav i l y ,
exc l us ively ,

a lmost

on the a l l egation that there was no reas onab l e b a s i s

f o r the statement that " [ t ] he Partnership be l i eves that funds

generated from the ope rat ion of the Taj
: a

cove r a l l o f its debt service

Mahal w i l l b e s u f f i c ient

( in t e r e s t and p r i n c i p a l ) . ,,

C o n s i de r a t i o n s o f caut i o n a ry l anguage a s ide ,

33

a c l a im b a s e d s o l e l y

o n th i s statement s im p l y i s not actionable ,

noth ing more than fraud by h i n d s ight .

f o r i t alleges

The Taj

w a s not ultimately

ab l e to generate funds s u f f i c i ent to cover a l l o f

s e rv i c e ,

its debt

and p l a inti f f s have c r i ed " f raud " as a salve t o their

d i s app o i ntment i n a f a i l e d investment .

However ,

f a i l ur e o f an

investment i s not intr i n s i c a l l y equatable with fraud i n the

o f f e r i n g of that investment .
e s s ence o f

such an equa t i o n i s the very

fraud by h i n d s ight .
The comp l a i n t i t s e l f d i ctates th i s

o f p l a i nt i f f s '
bas i s "

P l a i nt i f fs '

c l a im .

a l l egat i o n o f

i n t e rp retation
" no r e a s o nable

is a naked assert i o n unsupported by any f a c t u a l

a l l eg a t i ons

in the comp l a i nt .

P l a inti f f s prov i d e no

foundation

f o r the ir as s e rt ion that de f e ndants e i ther had no rea s o na b l e .

bas i s

for its bel i e f ,

o r that d e f endants d i d not i n f a c t hold

that b e l i e f .

Wh i l e we a r e

i n f erences

favor o f a comp l a i nant , w e concur w i t h the

in

reason ing in D i Leo ,

i n s t ructed to draw a l l reas o n a b l e

that n o reas onab l e in ferences o f

fraud can be

drawn from conc lusory allegations devo i d of factual b as i s .

Plaint i f f s must show "ob j ective e v i d e nc e " that the
challenged statement represents a d i shonestly held b e l i e f ,
b el i e f without reasonable b a s i s .

For examp l e ,

i n S in ay ,

or

" the

p l a i nt i f f s d i d not o f f e r any obj ective ev idence that the

statements were anyth i ng other than honestly he l d c o nv i c t i ons
b a s e d on the h i storical
S i nay ,

948

F . 2 d at 1 0 4 0 .

i n f o rmation which Lamson p o s s e s s ed . "

That

i s vi rtua l l y the same s i tuation a s

i s pres ented b y the comp l a int n o w under rev i ew .

34

I n S i nay the

.
d i s t r i c t court dismis s e d the comp l a i n t pursuant to Rul e 1 2 ( b ) ( 6 ) ,
D i sm i s s a l i s approp r i at e on

and that d i sm i s s a l was a f f i rmed .

these grounds here as we l l .

Further Cons iderat i ons Regard i ng the Ab i l ity to

S e rvice Debt on the Bonds C l a i m

D.

I n add i t i o n t o the " n o reasonab l e b a s i s "

a l l eg a t i o n ,

the comp l a i n t l i s t s f ive r e l ated " fa i l ures to

disc l o s e " which purport to a l l ege factual omi s s i o ns i n the

prospectus . 1 0

None can w i thstand the s c ru t i ny o f e ither the

" be s p e aks c a u t i o n "

inqu i ry ,

or the a n a l y s i s emp l o ye d in

determ i n ing whether a comp l a i n t states a c l a i m upon which re l i e f

may b e granted .
game o f

F i rst ,

" ed i t to wi n . "

respons i b i l i ty of

a federal secu r i t i e s fraud suit

It

management ' s

d i sgrun t l e d or. otherw i s e ,

to d r a f t

from the p o s i t ion o f h inds ight .

-rt

is

respons i b i l ity to draft a prospectus which makes

ful l d i s c l osure .
d i s c l o sure ,

is ne ither the right nor the

investors ,

the prospectus thems e lv e s

i s not a

Bespeak ing caut ion i s

an e s s en t i a l part o f such

particu l a r l y regarding future proj e c t i o n s .

P l a i nt i f f s cannot state a c l a im based o n how ,

i n retrospect ,

wou l d have pre f erred the cauti onary l a nguage to be d r a f t ed .

they
Nor

10 .
For examp l e , p l a i nt i f f s c l a im that the prospectus " fa i l ed
to d i s c l o se that the Taj Mahal would require an unprecedented
' ca s i n o w i n ' o f approximate l y $ 1 . 3 m i l l i o n per day on a
cont i n u i ng b a s i s to meet its enormous debt l oad , " f a i l ed to
d i s c l o s e that "a leading analyst o f the cas ino industry " had
warned Dona l d Trump that the Taj probab l y could not meet its debt
serv i c e , and " omitted t o state " that such a l arge c a s i n o win was
approximately f ive t imes the average c a s ino w i n for other
At l an t i c C i ty cas inos .
35

are there any factual a l l egat ions in t h e comp l a int g o i ng to show

th a t these om i s s ions or f a i lures to d i s c l os e were fraudu l ent .
P l a i nt i f f s a l s o a l l ege t h a t the prospectus
" om itted to sta t e ,

as required by Item 3 0 3

that there e x i s t ed

' known

. . .

of Regu l a t i o n S - K ,

uncerta in t i e s

regarding whether

ope r a t i o n o f the T a j M a h a l woul d gene r a t e s u f f i c i ent funds to

cover a l l o f

i t s debt s e rv ice

. . . ."

It

i s beyond t h i s cour t ' s

ken how p l a i nt i f fs cou l d support such a n a l l eg a t ion ,

cons ide r ing

the repeated warnings i n the prospectus that there most

d e f i n it e l y were "uncert a int i e s "

as t o the a b i l ity of the T a j

p a rtnership t o cover its debt serv i c e .

F o r examp l e ,

the

prospectus c l e a r l y stated that there w a s no h i s t o ry of earnings

at the T a j ;
o f the

that operati ons at the Taj

r i s ks

w o u l d be " sub j ect to a l l

i nherent i n the estab l i shment o f a new b u s i n e s s

enterpr i s e ; " that the ab i l ity o f the p a rt n e r s h ip t o serv-i_c e its

debt was

" c omp l etely dependent" on many d iverse factors ,

even within the partnersh ip ' s contro l ;

b e g iven tha t ,
that

once opened ,

some not

and that "no as surance c a n

the T a j M a h a l w i l l b e pro f i t a b l e or

it w i l l generate cash flow suf f i c i en t t o prov i d e f o r the

p a yment o f the debt service on the Note andjor any future

b o rrowings by the Partnership . "

Given t h i s l anguage ,

t h i nk unque s t ionably bespeaks caut i on ,

wh i ch we

we f a i l to see how

p l a int i f f s c o u l d succeed in convinc ing a reasonab l e j ury that the

p rospectus

" omitted to state" uncerta i n t i e s regarding the

p a rtnersh ip ' s a b i l ity t o generate funds suf f i c i ent to cover a l l

o f its debt s e rv i ce .

36

E.

The Taj Funding C l aim

We note here a rel ated a l l egation o f p l ainti f f s ,

the c l aim that the prospectus failed t o dis c l os e that operat i on

o f the Taj

involved an

" exces sive ,

unwa rranted ,

and unprecedented
Out o f the $ 8 0 5

debt component rel ative to tota l capit a l iz ation .

mil l i on totl proj ected cost for acquisition ,
init i a l

financing and rel ated costs ,

only nine percent )

36.

construction ,

no more than $75 mil lion

represented capital

( or

contributions . "

Comp l aint ,

prospectus

f a i l e d to dis c l ose that " no other Atlantic City casino

This a l l egation a l s o charges that the

proj ect was so thinly capitalized and ,

to downturns

therefore ,

s o vulnerab l e

i n the industry and economic downturns generally "

We must the r e f o re examine the language in the prospectus

regarding the

financing structure of the T a j .

I n the "S pecial Considera tion s "

entit l e d " The

Fin a n c i ng , "

the prospectus

sub- s ection

states that

" Approxima t e l y $ 8 0 5 , 0 0 0 , 0 0 0 wil l be required to

(i)

fund amounts

needed to comp l e t e construction of and open the Taj Maha l

( ii )

repay a l l indebtedness incurred in

financing the cost o f and

to pay certain as sumed liabilities with respect to ,

acquisition o f the Property
expected t o b e
appears the

incurred

. . . ,

. . . . "

and

( iii )

37

the

pay related expense s

Prospectus at

foll owing chart :

. . .

24 .

Beneath that

(
s ources

o f Funds

Gross proceeds of the Bonds . . . . . . . . . . . . . . $ 6 7 5 , 0 0 0 , 0 0 0

(1)
(2)
(3)

Capital contribut i o n . . . . . . . . . . . . . . . . . . . . .

7 5 , 000 , 000

Other sources . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5 5 , 0 0 0 , 000

Tota l
Footnote

(2)

$805 , 000 , 000

states that the $ 7 5 , 0 0 0 , 0 0 0 cap i t a l contribu t i o n i s

to " b e cont r i buted to the Partne rship b y Donald J .

Trump upon

i s suance o f the Bonds . "

I n l ight o f th i s d i s c l osure ,

p l a i n t i f f s cannot

state a secu r i t i e s fraud c l a im based upon an a l l egat i o n that the

prospectus

fa i l ed to d i s c l o se the debt component ratio .

such an

a l l eg a t i o n i s patently f a l s e .
However ,
It

from the comp l a i nt .

p l a i nt i f f s c l a im ,
actual numb e r s ,

a l l reasonable i n ferences must be drawn

lS

perhaps rea s on a b l e t o i n f e r that

not that the prospectus f a i l ed to set f o rth the

but that defendants f a i l ed to charac t e r i z e those

numbe r s as " excess ive , "

" unprecedented , "

" t h i n l y c a p i ta l i z ed . . .

[ re l a t i ve to ]

proj ect ( s ) . "

However ,

"unwa rranted" and

other A t l a n t i c C i t y c a s i n o

g iven t h i s i n ference ,

p l a int i f f s s t i l l

c a nnot succe s s fu l l y state a s ecur i t i e s fraud cl a im .

prospectus ,

wh i l e requ i red to " bespeak caution , "

i s not required

to a p p l y pej orative or de rogatory descr iptors to the investment

it is s e l l i n g .
n.8

( 2 d Cir .

See ,

1977)

Go ldberg

v.

Mer idor ,

567 F . 2d 2 09 ,

( S ec t i o n l O b and Ru l e l O b - 5 do not requ i re

charact e r i z a t i ons o f transactions " w i th pej orative nouns o r

38

2 18

(
adj ectives ) ,

cert .

denie d ,

434 U . S .

1069

Natio n a l Property Ana lyst s Partners ,

(S.D.N.Y.

1989)

( c l a im that d e fendants

fees and expenses o f tra n s a ction as

such a c l aim " admitt [ ed ]
dis c l o s ed " ) ;
(D.

Del .

Val ente

19 7 8 )

719

v.

( 19 7 8 ) ;

F.

O ' Brien v .

Supp .

222 ,

228

failed to characterize

" exces sive" not actiona b l e

that the amount o f f e e s and e x p e n s e s was

Pepsico,

I nc . ,

( citing G o l db erg v .

454

F.

Meridor ) .

Supp .

122 8 ,

Accordin gl y ,

1253
this

a l l egation wou l d not be actionab l e under federal s e curities l aws

simp ly for l a cking descriptors such as " excessive"
"unwarranted . "

Nor is there any l eg a l ob ligation for management

to compare it s e l f ,
compet i tors .

and

u n f avora b l y or otherwise ,

to industry

Comparison shopping is the responsibility o f the

r e a s o n a b l e investor .
This b r i ngs u s to the end o f p l aint i f f s '
that the dis c l o sures

in the prospectus regarding managemen t ' s

ability to s e rvice the debt on the bonds were f a l s e ,

and

fraudu l ent .

c l aim

mis l ea ding

P l ainti f f s cannot state a c l aim for which relie f

c o u l d be granted ,

and accordingly this part o f the compl aint is

dismi s s e d .

VI .

Pla inti f fs '

Next ,

S econd C l aim - - Competition

pl aintif f s a l l ege that the pro s p ectus failed

to a d e quat e l y disc l o s e the risks to the T a j ' s suc c e s s p o s e d by

competit i o n in the casino industry .

39

According l y ,

we

first

(
examine the statements

in the prospectus d e a l ing with such

compet i t i o n .

A.

The Prospectus
The risks

" S p ec i a l Cons ideration s "

of compe t i t i o n are f i rst r a i s e d i n the

sub - s ection ent i t l e d " Compe t i t i o n . "

It

i s worth excerpt ing here the entire cont ents o f that sub - s e c t i o n :
Comp e t i t i on i n the A t l an t i c City
casino/hotel market is intens e .
At present ,

there are twe lve c a s i no/ho t e l s in Atlantic

c i t y , including Trump Cas t l e H o t e l & C a s i n o
( wh i ch is currently undergo ing a n e xp a n s i o n
program ) and Trump P l aza Hotel a n d Cas ino
( wh i ch is currently undergo ing an extens ive
re f u r b i shment and renova t i o n program) .
See
" Po t ential Con f l icts o f I nt e re s t " above .
S ome Atlantic C i ty cas ino/hot e l s recently
have completed renovations or a r e in the
process of expanding and improving the i r
facil ities .
I n S eptember 1 9 8 8 , a
c a s i no/hotel added 3 0 , 0 0 0 square feet to i t s
c a s ino f l oor space and 5 0 7 rooms t o i t s h o t e l
cap a c ity .
Moreover , another c a s ino/hotel h a s
b e g u n constru c t i ng a new hotel tower w i th
approximately 8 0 0 rooms , wh ich i s schedu l e d
to open in 1 9 8 9 and which w i l l permit the
c a s i no/hotel to add up to 6 0 , 0 0 0 square f e e t
to i t s c a s i no f l oor space .
P r e l iminary p l ans
have been announced for the c o n s t ruction o f a
new cas inojh o t e l which , i f construct e d , i s
expected t o open b y 1 9 9 1 a n d to have
approximately 6 0 , 0 0 0 square f e e t o f c a s ino
f l o o r space .
Prel iminary p l an s a l s o e x i s t
f o r t h e construction o f two a d d i t i o n a l
c a s i nojhotel s , e a c h w i t h approxima t e l y 6 0 0
h o t e l rooms and 6 0 , 0 0 0 squar e f e e t o f cas i n o
f l o o r space , n e ither o f which , i f
c o n s tructed , i s expected to open b e f o r e 1 9 9 2 .
I n add i t i on , both the Resort s C a s ino Hotel ,
which i s expected to be renovated , and the
S howboat C a s i n o and Hotel ( " Showboat " ) are
s i tuated next to the Taj Mahal and w i l l each
be connected to the Taj Mahal by an e l evated
pedestrian w a l kway .
The Partnership b e l i ev e s
that ,

based upon h i s t orical

40

trends,

casino

win per square f o o t o f casino space wi l l

decline i n 1 9 9 0 as a result o f a p r o j ected
increase i n casino floor spac e , i n c luding the
opening of the Taj Mahal .

Prospectus at 1 4

( empha s i s added ) .

Add i t i o na l l y ,
Intere s t "

under "Potent i a l C o n f l icts o f

in " S p e c i a l C o n s i deration s , " t h e p r o spectus states that

'' ( t ) he Trump C a s i no s compete d i rect l y w i t h each other and w i t h

other Atlantic C i ty c a s i no/hot e l s a n d w i l l compete w i t h the Taj
Mahal

for cas ino ,

h o t e l and restaurant customers and f o r

conven t i on bus ine s s . ''

Prospectus a t 1 4 .

C o n s i d e r a t i ons o f compet i t i on i n the c a s i nojhotel

industry are revis i t ed in the
o f the prosp ectus .

''Management ' s D i scus s i o n "

s e c t i on

In a d d i t i o n to repea t i ng that " ( c ) ompe t i t ion

in the Atlantic C i ty c a s ino/hotel market is

sect ion notes that the

intense , " t h i s

" At l a ntic C i ty C a s i n o industry i s

currently exp e r i e n c i n g a s i gn i f i cant i n c r e a s e i n capac ity ,

is gene ra l l y measured by ava i l ab l e c a s i n o
Prospectus at 3 3 .

f l o o r space . "

A f t e r again det a i l ing the vari ous current and

ant icipated expans i o ns ,

the area ,

which

renovations and

future construction in

the sect i o n cont inue s :

The Taj Mahal would a l s o compete with
any c a s i n o s in j ur i s d ictions c l o s e to New
Jersey that may auth o r i z e c a s i n o gaming in
the future .
Leg is l a t ion p e rm i t t ing cas ino
gaming has been proposed , from t ime to t ime ,
in various states .
The Partnership a l s o
faces compe t i t i on from casinos l ocated i n
Nevada , Puerto R i c o , the c a r i b b e a n and The
Bahamas , as we l l as from other forms o f
l ega l i zed gaming i n New Jersey and i t s
surrounding states such a s l ott e r i e s , horse
rac i n g , j a i a l a i and dog racing .

41

The Partnership bel i eves tha t , b a s ed upon

h i storical trends , cas ino w i n per square f o o t
o f cas ino space w i l l decl ine i n 1 9 9 0 as a
result o f a proj ected incre a s e i n c a s ino
f l o o r space , including the opening of the T a j
Mahal .
Growth in Atlantic C i ty win is
expected to be r e s t rained unt i l further
improvements to the C ity ' s transportat i o n
s y s tem and infrastructure a r e undertaken a n d
completed and the number o f non-c a s ino hotel
rooms and e x i s t ing convent i o n space are
i ncreased .
No as surance can b e given with
respect to e i ther the future growth o f the
A t l antic C i ty gaming market or the abi l i ty o f
t h e Taj Mahal to attract a representative
share o f that market .
The pro f i tabi l i ty of the Taj Mahal cou l d
b e a f fected by its proximity to the Resorts
cas ino Hote l , whi c h i s being acquired by
G r i f f in c o . , and the Showboat , which i s owned

and operated by an entity not a f f i l iated w i t h

the Partnership . . . .
The Taj Maha l , Resorts C a s ino Hotel and
S h owboat are l ocated at the e a stern end o f
the Boardwa l k , approx imate l y one-ha l f m i l e t o
one and one-ha l f m i l es to the east o f e ight
The
other At lant i c C ity cas ino/hote l s .

e f f e c t of the concentration of the maj o r i ty

o f the casino/ h o t e l s at the opp o s i te end o f
the Boardwalk has h i s to r i c a l l y been to
attract the gaming patron volume to that are a
and away from the eastern e n d o f the
Bo ardwalk , where the Taj Mahal wi l l be
l o cated .
The Partnership b e l ieves that the
opening of the Taj Mahal and the proximity o f
the Showboat and Resorts C a s i no Hot e l w i l l
attract an increased volume o f patrons to the
v i c i nity of

the Taj

Mahal .

Cas inos i n Atlantic C i ty must be located

in approved hotel fac i l i t i e which o f fer
d i n ing , entert a i nment and other guest
fac i l ities .
Compe t i t i o n among c a s i no/hot e l s
i s intense and i s based prima r i l y upon
promotional a l l owances ; advert i s i ng ; the
attract iveness o f the cas ino area ; serv i c e ;
qua l ity and p r i c e o f rooms , food and
beverages ; restaurant , convention and parking
f ac i l ities ; and entertainment .
In order to
42

compete e f f e ctively with a l l other Atlantic

c i ty casino/hote l s , the Partnership intends
to o f f er compl imentary drink s , meal s , room
a c c ommodations andjor trav e l arrangements to
i t s preferred customers , as w e l l as cash
bonuses and other incentives pursuant to
app roved bus

Prosp ectus a t 3 4

B.

coupon programs .

( emph a s i s added ) .

Appl i c a t i o n o f the " Be speaks Caut ion" Appr o ach

We begin by comment i ng on the volume and degree o f

caut i onary l a nguage regarding compet i t i on .

prosp ectus v i rtua l l y b r i s t l es w i th w a r n i ngs .

Here aga in ,
And ,

the

these warnings

are spec i f i c a l l y ta i l ored to the purported m i s represent a t i ons and

om i s s i o ns .
P l a i nt i f f s base the i r a l l egation o f a cover-up of
compe t i t ive r i s k s on the prospectus s t atement that the
partnership " b e l ieves that the opening o f the Taj Mah a l

in-he

proximity of the Showboat and Resorts C a s i n o Hotel wi l l attract

an increased volume o f patrons to the v i c in i ty o f the T a j Maha l . "
According to the comp l a i n t ,

this statement v i o l ates federal

secu r i t i e s fraud laws because it " fa i l s to addre s s the f a c t that

drawing gamb l i ng do l l ars from one c a s i n o to another woul d fa i l to
mater i a l l y increase the c a s ino win for Taj Mahal on average . "
P l a i nt i f f s c l a im that th i s was materi a l l y m i s l ead ing .

Howev e r ,

the prospectus i n fact admits that cas ino w i n s are expected t o

decrea se i n at l e a s t the n e a r future ,

and del iberately o f fers n o

a s surances o f increases i n cas ino wins .

Moreover ,

the cha l l enged

s t atement does not say that the T a j w i l l draw more gaming patrons

43

(
away from Showboat and Resort s ,

but merely that the c lustering o f

the three c a s inos together a t that end o f the boa rdwa l k could
attract more patrons to the v i c in ity o f the Taj .
The comp l a i nt continues ,

" [ i ] n fact ,

i t would cost

more money t o attract gamb l e r s from one cas ino to another than
would be earned by any increase in bus in es s ,
incre a s i n g the cas ino win ,

thereby not

but rather decreas ing i t . "

Aga in ,

p l a i nt i f f s d i s regard the very language o f the prospectus they

seek to cha l l enge .

Noting for a th i rd t ime that comp e t i t i on in

the Atlant i c C ity c a s i no industry is intense ,

the prospectus

warns that success i s pred icated on a l l sorts o f promo t i onal and

advert i s i ng incentives ;
Taj

and sets

forth some of the tact i c s the

w i l l have to emp loy in order to compete e f fective l y .

These

include comp l imentary drinks ,

mea l s ,

room accommodat i ons and travel a rrangements for e ferred

"
customers .
Surely th i s ind i cates that e f fective compet i t ion w i l l

cost money .
exactly the
I.

"

A s in I . Meye r P i n cu s ,
' f act '

that

Meye r Pincus ,

[ p l a int i f f ]

here " the prospectus states

contends has been covered up

9 3 6 F . 2 d at 7 6 2 .

Plaint i f f s a l s o attack the competition d i s c l osures

o f the prospectus from another angle .

They cl a im that the

statement about attracting more patrons to the v i c i n i t y of the

Taj ,

Showboat and Resorts was mate r i a l l y m i s l eading because i t

" f a i l ed to d i s c lose the mate r i a l fact that the open ing o f the Taj
Mahal
Plaz a ,

in the proximity of the Showboat ,

Trump Castle ,

Trump

and Resorts C a s i n o Hotel would mater i a l l y increa s e the

44

r i s k that e i ther the C a s t l e ,

fail

the P l a z a or the T a j

or b e unable to s e rv c e its debt . "

This

Mahal would

f a i l ure would

a l l egedly " tarni sh" Donald Trump ' s name and bus i n e s s reputat i o n ,
further harming the T a j ,

according to p l a i nt i f f s .

Comp l a i nt ,

38.

Thi s c l a i m a l s o is not a c t i onab l e .

The prospectus

warns o f the e x i stence o f compet ition among D o n a l d Trump ' s

v a r i ous ca s in o holdings

i n Atlantic C i ty:

" ( t ] he Trump Cas inos

compete d irect ly w i th each other and with other A t l a n t i c C i ty

c a s i n ojhot e l s

and w i l l

compete with the Taj

Mahal

for c a s ino ,

h o t e l and r e s t aurant customers and for c o nvent i o n bus i n es s . "

Ther e f ore ,

p l a i nt i f f s c o u l d not estab l i sh that the prospectus was

fraudu l ent i n

f a i l ing to d i s c l ose the e x i stence of compet i t i o

among de fendant Tr mp s c a s inos .

Aga i n ,

the prospectus states

the very fact which p l a i nt i f f s contend has b e e n omitted .

We

cannot imag ine any l anguage which would more e f f e c t i v e l y bespeak

caut i o n and p r ov ide i nv es t ors with a l l the i n forma t i o n they need
to make an i n d ependent ,

reasoned bus i n e s s j udgment of their own.

P l a inti f f s a l s o c l a im the prospectus was

m i s l ead ing about compe t i t ion by a l l eg i ng that the prospectus
"a l s o omitted t o d i s c l o s e the l ikely e f fect of the a l ready
weakened economy in the Northeast and the potent i a l
comp e t i t i o n f r om cas i n o s
: ? r i n c i p a l l y the Mirage ,

19 .

located in La s Vega s ,

for

Nevada ,

then under construct i on . "

Comp l a int ,

Because the prospectus i n fact sta t e s that '' ( t ] he

artnership a l s o faces compet ition from c a s i n o s l ocated i n

45

(
Nevada ,

Puerto Rico ,

the caribbean and The Bahama s , n w e f in d that

p l a i nt i f f s c o u l d not recover on an a l l eged f a i lure to d i s c l os e

r i s k s o f comp e t i t i o n f rom Las Vegas c a s i n o s .

Y e t a ga i n ,

is precisely

1 1 bespeaks c aut i o n 1 1 doctr i n e

t h e s o rt o f c l a im t o wh i ch the
addre s s e s i t s e l f .

This

the prospectus s t a t e s e x a c t l y the

fact that p l a int i f fs contend was covered up .

With respect to the c l a im that the prospectus
omitted to d i s c l o s e the

" a l ready weakened economy in the

Northea s t , 11 w e make two comment s .

First ,

the pro spectus makes

in wh ich the general

numerous re f e rences to the p o s s i b l e ways

state o f the economy w i l l a f f ec t the success o f the T a j

and the

c o rresponding a b i l ity o f the partnership to succ e s s fu l l y compete

as we l l as s e rv i ce the debt on the bond s .
unquest i ona b l y warned potent i a l
that econom i c cond i t i on s
Roma n i ,

949

p l a i nt i f f s '

F . 2 d at 8 7 9

in the

inv e s t o r s

[]

Thus ,

1 1 the d ocumens

in a meaningful way

industry were unc e rt a i n . 1 1

( emph a s i s adde d )

This renders

a l l egation not actionab l e .

S econd ,

there i s no obl i g a t ion under the

secur i t i e s l aws for an o f fering document to set

forth

i n f o rmation

which is w i d e l y ava i l a b l e to the pub l i c and which a r e a s o n a b l e

investor ought to be h e l d accountable f o r know i n g .
S i nay v . .Lamson
199 1 )

&

S e s s i ons Co . ,

948 F . 2d 1037 ,

1041

See ,

( 6 th C i r .

( " [ n ] ew s o f the l a b o r probl ems w a s w i d e l y d i s s em i n ated in

the med i a ,

l o ca l l y

. . .

divulge any t h i ng more

d i f f i culties . 1 1 )

and nationa l l y .

There w a s no duty to

f o r the pub l i c about the l ab o r

There can be no c l ea r e r examp l e o f such

46

in forma t i o n than the general state o f the economy ,

part i c u l a r l y a

F o r this reason a s well ,

w i d e l y - reported recess i o n a ry downturn .

this c l a im i s not act i on ab l e .
Fina l l y ,

the comp l a int makes the bew i l d e r i ng

a l l eg a t i on that " [ t ] he Prospectus in general de-empha s i z ed the

bus i n e s s r i s k s involved in operat i ng the Taj Mahal . "

, 39.

Comp l a i nt ,

Cons i de r ing a l l the quoted port i o n s o f the prospectus so

f a r inc luded

in our op i n i on ,

thi s al legation i s indeed the sort

for which a motion to d i sm i s s i s most f i t t ing .

We f i nd that the prospectu s '

entire treatment o f

compet it ion " bespeaks caut i o n " to a str i king degree .

I n the

compe t i t ion c l a im as we l l as in the ab i l i ty to serv i c e the debt

c l a im ,

p l a i nt i f f s have attempted to make out a susta i nable

fede ral secur ities fraud case by extract ing a s i ngle sentence
from the ent i re body of the prospectus ,
la nguage related to that sentence .
dismissal

is requ ired ,

regard l e s s of a l l other

Under such c i rcumstances

for even given the most generous reading

of the i r comp l a int p l a i n t i f f s could not recover as a matter o f

law .

Read i n context ,

a s it must be ,

the chal l enged statement

reg a rd ing compet ition i s not m i s leading a s a matter o f l aw ,

therefore is not act i o n ab l e .

VII .

P l a i nt i f f s '
Next ,

and

Th i s c l a im w i l l be d i sm i s s ed .

Th i rd C l a im -- Appr a i s a l s
p l a i nt i f f s chal lenge the treatment o f

appra i s a l s o f the Taj ' s v a l u e i n the pro spectus .

The prospectus

ref erenced three appra i s a l s of the worth of the Taj .

47

Two o f

(
the s e appra i s a l s ,
Appra i s a l ,

the AGI current Appra i s a l and the MGA current

e s t imated the current worth o f the Taj

the bond o f f e r i n g .

The comp l a int does n o t attack the AGI Current

Appra i s a l and the MGA Current Appra i s a l .

c a l l e d the A G I Report ,
worth o f the T a j .
ba s i s

at the t im e o f

The third appra i s a l ,

was an e s t imate o r foreca s t o f the future

The comp l a int a l l eg e s there was inadequate

for management ' s rel iance on the apprai sed value of the T a j

" a s o f i t s o p e n i ng date in l a t e 1 9 8 9 o r early 1 9 9 0 . "

We may

reasonab l y i n f er from th i s that the a l l egation i s l im i t ed t o the

appra i s a l of

future worth ,

the AG I Report .

The comp l a int further

a l l eges that wh i l e this appra i s a l was b a s e d prima r i l y on t h e

capi t a l i z a t i on o f income approach ,
reasonab l e e s t imate of the Taj

A.

" i t was imp o s s i b l e to make any

Mahal ' s future income . "

The Prospectus
The " Appra i s a l s " aspect o f the " Sp e c i a l

Cons iderat i o n s "

section contains the f o l l owing l anguage :

I n connect ion with the acqu i s ition o f

the Property and the o f fering o f the Bonds ,
The Trump Orga n i z ation o b t a i ne d appra i s a l s
f r o m Appra i s a l Group Interna t i onal ( " AG I " )
and Martin Gross Associates ( "MGA" ) ,
independent MAI appra i s ers , re f l ecting the
current market value of the Property . . . .
The T rump orga n i zation a l s o obta ined a report
from AGI ( " the AG I Report " ) which states that
the appraised market value o f the Property ,
a s o f Decembe r 1 , 19 8 9 , o n the a s sumption ,
among other things , that the T a j Mahal i s
fu l l y completed and open to t h e pub l i c as a n
operating cas inojhotel on o r ab out Decembe r
1 , 1 9 8 9 is $ 1 , 100 , 0 0 0 , 0 0 0 .

48

(
Appra i s a l s are estimates or opini ons o f
value and cannot be r e l i e d upon as pre c i s e
measures o f value or worth .
I n addi tion , the
appraisal in the AGI Report is an estimate o f
the market value o f the Taj Mahal at a future
date .
The amount that the Partnership might
real i z e from the sale of the Property may be
more o r less than i ts apprai s e d market value ,
depending on i t s then current and anticipated
uses , and zoni ng , financial , economic , market
and other conditi ons that may a f f ec t a
property ' s value .
Moreover , the appraised
market value does not reflect vbat might be
real i z e d upon l iquidation o f the Taj Mabal or
the sale o f the Taj Mabal in a d i stress sal e .

Prospectus a t 1 7

( emphas i s added ) .

Appra i s a l s are rev is ited i n

"Management ' s

I n the s e c t i o n ent i t l ed " Propert i e s o f the

D i s cus s ion . "

Partn e r s h i p , " there i s a sub-section spec i f i c a l l y d e a l ing w i th

I t aga i n d e s c r i b e s the three appra i s a l s ,

appra i s a l s .

and repats

verbatim the caut ionary l a nguage that appra i s a l s " a re e s t imates

or o p i n i ons . "
states that

Prospectus at 3 9 .

Addit i o n a l l y ,

the pro spectus

" [ i ] n the o p i n ion of the appra i s e r s ,

the appra i s a l s ,

wh ich a re sub j ect to cert a i n a s sumpt ions and qua l i f i ca t i ons ,

were

prepared in conformity w i th the guide l in e s regarding appra i s a l

procedures s e t forth i n regu l a t ions gov e rn ing Fede r a l s a v i ngs
i n s t i tut ions . "

Prospectus at 3 9 .

recogn i z ed methods of v a l u a t i o n
comparab l e s a l es approach ,
approach ,

The appra i sers

. . . ,

'' emp l oyed three

the c o s t approach ,

the

and the cap i ta l i z a t i o n o f income

[ but ] gave pr imary importance t o the cap i t a l i z at ion of

i ncome approach . "

Prospectus at 4 0 ,

that the future appra i s a l ,

arket v a l u e of the Taj

41.

the AGI Report ,

And i t was a g a i n noted

" i s an e s t i ma t e of the

Mahal as of a future date and there can

49

(
b e no a ssurance that the T a j

Mahal could b e s o l d a t any t ime ,

a forec l o sure s a l e or otherw i s e ,

in

for an amount equal t o or

exceeding its then appra i s e d value . 11

Pro spectus at 4 1 .

Appl i c a t i o n o f the 11Bespeaks Caut i o n " Appr o ach

B.

our ana l y s i s here mirrors the ana l y s i s undertaken

regard ing p l a i nt i f f s '
citat ions

other c l a ims .

First ,

we f in d that the

in the prospectus to the AGI Report bespeak caut i on i n

a prominent ,

spec i f i c way .

supports this

f i nding .

The very text o f the prospectus aga i n

Next ,

we reca l l that 11 [ e ) conomic

proj ections are not act i o na b l e

9 4 8 F . 2 d at

104 0 .

Accord ing l y ,

if they b e speak caut i o n . 11

S inay ,

p l a i nt i f fs c l a ims to the extent

they are based on management ' s re l i ance on the AGI R e p o rt are not
actiona b l e .
This c l a im appears to b e yet anothe r a t t empt to
hold de fendants l i a b l e f o r fraud by hinds ight .
[ p l a i nt i f f ]

1 1 I n e s sence

specu lates that defendants committed f raud b a s ed

s o l e l y on the partnershi p ' s f a i lure to b e a s pro f it ab l e a s the

Roma n i ,

o f f e r i ng mate r i a l s ind i c a t ed was pos s ib l e . 11

880.

However ,

a s prev i o u s l y d i scussed ,

fraud by h i nd s i ght i s not

act ionab l e under federal s ec u r i t i e s laws .

provided a n y factual b a s i s
reasonab l e b a s i s

Nor have p l a in t i f f s

f o r the ir a l l egat ion that there w a s n o

for the AGI Report ' s conc l u s i o n that the Taj

cou l d at a future date b e worth $ 1 . 1 b i l l i on .

earl i e r ,

9 2 9 F . 2 d at

no i n f erence of

A s we noted

f raud can be drawn from conc l u s o ry

50

(
a l l eg a t i o n s devo id o f factual bas is .
There f ore ,

VI I I .

S ee D i Le o ,

supra .

t h i s c l a im w i l l b e d i sm i s s ed .

P l a int i f f s ' Fourth C l a i m - - D o n a l d Trump ' s F in a n c i a l

Status a n d H i s Ob l igat i ons to the Bondh o l ders
The comp l a int a l leges that f a l s e and m i s l ea d i ng

omi s s i o ns and statements w i th respect to de fendant D o n a l d T rump ' s

f inanc i a l st atus and o b l igat ions appeared i n two forums :
prospectu s ,

and a l s o v a r ious med i a news sourc e s .

the

These present

d i f ferent i s sues we w i l l treat s e r i a t im .

The crux o f p l a int i f fs '

c l a i m here i s that both

the prospectus and the statements reported in the med i a f a i l ed to

d i s c l o s e that Dona l d Trump ' s
stab l e ,

financial cond i t i on was

and omitted to state that the Taj

woul d s u f f e r and be

incapa b l e of serv i c i ng the debt on the bonds

condit ion or reputa t i o n were " tarni shed . "
a l l eges that the prospectus

l e s s than

if h i s

f i nancial

The comp l a int arso

f a i l e d to d i s c l o s e the cap i t a l

contribution Donald Trump was obl igated t o make t o the T a j

fund ing p l a n ,
Taj

and that t h e amount o f h i s cont r i b u t i o n l e ft the

heav i l y l everaged .

A.

The Prospe ctus

In the

" S p e c i a l Cons idera t i ons "

sub - s e c t i on

ent i t l ed " Trump Comp l et i on Guaranty , " the prospectus notes that
wh i l e " Dona l d J .

Trump w i l l covenant ,

the construction of the Taj

by March 1 ,

199 1 ,

. . .

agree and guarantee that

Mahal w i l l be subs t a nt i a l l y completed

Dona l d J.

T rump w i l l not ,
51

under any

,.
(
c i rcumstanc e s ,

be obl igated under the T rump Comp l e t i o n Guaranty

or the Trump Line of Credit to pay the p r incipa l of ,

any ,

o r int e r e s t on the Bonds

I n the

prospectus ,

it

. . . . "

premium ,

if

P r o s p ectus at 1 3 .

" Management ' s D i s c u s s i o n " port i o n o f the

is stated :

Dona l d J . Trump has adv i s e d the Partnership

and the Company that he has s u f f i c i ent
f i n a n c i a l r e s ources to perform h i s
obl i g a t i on s under the Trump Comp l e t i o n
Gua ranty .
He has further adv i s ed t h e
P a rtnership a n d the Company t h a t h i s net
worth , determined in accordance with
gen e ra l l y accepted accounting p r i nc i p l es
app l i cable to personal f i nanc i a l statement s ,
i s a t l ea s t $ 5 0 0 , 0 0 0 , 0 0 0 .
I n c omputing such
net worth , a s s ets and l iab i l it i es are stated
at their e s t imated current v a l u e s and
Depending upon the c i rcumstances
amounts .
under wh i ch a s s ets are l i qu i da t ed , Donald J .
Trump may or may not b e abl e to rea l i z e the
f a i r market v a l ue of such a s s e t s .
A
sub stant i a l portion o f Dona l d J . Trump ' s
a s s et s cons i s t of real property or interests
in regul ated enterp r i s e s , w h i ch may a f fect
the l i qu i d ity of such a s s et s .
Prospectus a t 68 .

B.
Other

Appl i c a t i o n o f t h e " Be speaks Caution" Appr oach a n d

Cons iderations
P l a i nt i f fs a l l ege that the prospectus d i d not

d i s c l o s e that Dona l d Trump intended to o r was spending m i l l ions

of do l l ars o n ventures other than the T a j ;
mis l e a d i ng because it f a i l ed to in form
f i nanc i a l c o n d i t i o n w a s shaky ,
However ,

and that this was

investors that h i s

and that this cou l d h a rm the Taj .

we a r e constrained to po int out that Dona l d Trump ' s

obl i g a t i ons under the Taj

fi nancing d e a l were unequivoc a l l y set

52

-.
f o rth

in the prospectus .

H i s c a p i t a l c o ntribut i o n ob l igat i on w a s

l im i ted to a $ 7 5 m i l l i on amount .

The prospectus stated that

Dona l d Trump could make good o n this o b l igation ,

d i d so .

P l a i n t i f fs do not al l ege ,

and he

in fact

n o r could they al l eg e ,

d i d not make the $ 7 5 m i l l ion contr ibut i o n .

that h e

How Dona l d T rump

expended h i s own funds above and beyond the $ 7 5 m i l l i o n w a s

irre levant t o the T a j

he was not a personal gua rantor of the

prospectus makes expl i c i t ,

Taj ' s succ e s s .

As the v e ry l a nguage of the

deal .

Accordingly there was n o requ i r ement t o d i sc l os e

informa t i o n a s t o how he would manage that port i on o f h i s net

worth in e x c e s s of the $ 7 5 m i l l ion cap i t a l contribut i o n .

Indeed ,

we can d i s c e rn no requi rement for the d i s c l osure o f h i s precise

personal net wo rth at a l l ,

other than p e rhaps to further a s sure

bondh o l ders he could perf orm h i s ob l ig a t i ons to the partnership .

Furthermore ,

as a matter o f law ,

attenuated to b e acti onab l e .

this c l a im i s t o o

The connec t i o ns which p l a i nt i f fs

seek to draw are beyond the bounds o f management ' s respons i b i l ity
The

to d i s c l o s e .
Trump ' s

" un d i s c l osed f a c t " that any tarn ish to Donald

f inanc i a l reputa t i on could b e r e f l ected in the prosperity

of the Taj
investor ,

is

in rea l i t y an in ference w h i ch any reas o n a b l e

g i v e n the d i s c l osures made i n t h e prospectus a n d the

we l l -known ,

w i dely- reported pub l i c prominence of Dona l d T rump ,

could have made independent l y .

The d i s c l osure requ i r ements o f

:; ection 1 1 a n d l O b d o not ant i c ipate a duty by management to draw

i n ferences

f o r investors .

:raud l aws

i s d i s c l osure ,

Aga i n ,

the o b j ect of the secur i t i e s

n o t bus i n e s s j udgment .

53

Bus i n e s s

..
j udgment ,

i n c l uding i n f erences drawn from ful l y- d i s c l o s ed

i n f o rmat ion ,

r ightly rema ins the prov i n c e o f i n d iv i du a l

inve s t o rs .
Prominent and spec i f i c i n f o rmat i o n in the
prospectus a l s o renders not act i o nab l e p l a i n t i f f s '

spur i o u s

a l l eg a t i o n t h a t Dona l d T rump ' s guarantee o f $ 7 5 m i l l i o n

" i n d i cated greater l everage o n the T a j Mahal than inves t o r s and
the Purcha s e r C l a s s were l e d to expect from the Prospectu s . "
d i s cu s s e d supra ,
c l a im ,

in connection w i th p l a i nt i f fs '

Taj

fundi ng

the prospectus s e t forth the ent i r e f in a n c ing s t ructure o f

the T a j ,

i n c l u d ing Dona l d Trump ' s cap i t a l contr ibut i o n .

purchasers knew that the bonds were worth $ 6 7 5 m i l l i on ,

the total c a p i tal contribut i on was

far

The prospectus thus s e t f o rth the very

a l l ege was covered up ,
This

is

As

Bond
and that

l e s s than that amount . .

fact wh i ch p l a i nt i f f s '

the degree to wh ich the T a j

was l ev e raged .

indeed beyond the bounds o f b e s p ea k i ng caution .

Final l y ,

the a l l eg a t i o n that the prospectus

d i s c l osure o f Donald Trump ' s net worth a s $ 5 0 0 , 0 0 0 , 0 0 0 w a s f a l s e

a n d m i s l ea d i ng i s a l s o n o t act i onab l e .

A l though p l a i nt i f f s state

in the i r comp l a int that the net worth was b a s e d on a rt i f i c i a l ly

i n f l ated appra i s a l s and the f inanc i a l s t atements re l i ed upon were
not prepared i n accordance with genera l l y accepted account i ng
principles ,
S e e D i Leo ,

ther e is a g a i n no factual b a s i s f o r the s e c l a ims .

supra .

And i n any event ,

the comp l a i n t b e s p e aks

cau t i o n in the manner in which i t presents the net worth

appra i s a l :

i t warns that the net worth i s based o n e s t imated

54

(
v a l u e s o f a s s ets,

which may not b e real i z ed

Thus ,

l i qu i d a t i on a t some future date .

D o n a l d Trump ' s net worth,

the d i s c l osure about

which is nota b l y nothing more than

another future proj e c t i on,

is d irectly addressed b y narrowly-

t a i l or e d caut i onary l anguage .

t h i s c l a im,

in the event o f

P l a i nt i f fs could not recover on

and ther e f o r e i t must be d i sm is s ed .

c.

The S t atements Reported

in the Med i a

The comp l a int c it e s var i ou s med i a sourc e s ,

the Wa l l S t reet Journa l ,

Newsweek and Forbes ,

such as

a l l eg ing that

certa i n statements reported in these sources form the b a s i s for a

fed e r a l secu r i t i e s fraud c l a im . 1 1

In the statements at

Don a l d Trump reportedly remarked,

inter a l i a ,

be a tremendous succe s s ,
b i l l i o n d o l l ar s ,

i s sue,

that the Taj wold

that h i s net worth was four or f ive

that he wanted to become the " k ing o f c a sh , " and

that he denied having cash f l ow problems .

thes e statements are act i onabl e .

P l a i n t i f f s argue that

We d i sa gree .

Defendants argue several b a s e s for d i sm i s s ing this

claim .

However,

we need only remark that every s t a t ement l i sted

in the comp l a int was made,

p l a i nt i f fs themselves,
i s sued i n 1 9 8 8 ,
be fore

1989 .

accord ing to the dates given by

during 1 9 8 9 and 1 9 9 0 .

The bonds were

and p l a i nt i f fs admittedly purcha s e d the i r bonds

P l a i nt i f fs cannot rely on statements made

subsequent to the i r purch a s e s in order t o state a s ecur i t i es

11.
P l a i nt i f fs did not attach to the comp l a int cop i e s o f the
a r t i c l e s from which they quoted .
55

(
fraud c l a im ,

because p l a i n t i f f s could not have rel i ed o n the

sta tements i n making the ir purcha s e s in the f i rst place .

S chwartz v .

Novo Indu str i A/S ,

Supp .

658 F .

at 7 9 5 .

See

" (N] o

l i a b i l ity attaches to statements made a ft e r the tran s a c t i o n

t ) herefore

[ p l a int i f f ' s )

a l l egations regarding a fter-made

s ta t ements do not state a c l a im . "

Industr i e s ,

694 F.

Supp .

( and

1057 ,

1064

Stevens v .
(S . D.N.Y.

Eguidyne Extractive
1988) .

Plaint i f f s respond that they represent a putat ive

class ,

potent i a l members o f which may have purchased bonds

subsequent to ,

and i n rel i ance on ,

res ponse f a i l s to persuade us .

these statements .

This

The named p l a i nt i f f s coul d not

represent a c l a s s wh i ch inc luded bondh o l ders who purchased a ft e r

these statements were pr inted ,

as a l l o f the named p l a int i f f s

purchased p r i o r to c i rculation o f tho s e statement s .

Thus the

named p l a i nt i f f s here wou l d not be " s im i l arly s ituated" :t:..Q such

poten t i a l c l a s s membe rs ,
interests .

and could not adequately represent the i r

" The fact that a case i s brought a s a c l a s s act ion

does not change the c a l culus ;

named p l a inti f fs

a c l a s s of whom they are not a part . ' "

Financial C o rp. ,
omitted ) .

772 F .

Acc ording l y ,

Supp .

1315 ,

1316

' cannot represent

H a ft v .
(D.R. I .

Eastl and
1991)

( c itations

p l a i nt i f fs cannot state a c l a im upon

wh ich rel i e f could be granted based on these media statement s ,

and the c l a im must therefore be d i smi s sed .
Th i s d i s p o s e s o f a l l p l a i nt i f f s '
c l a ims for re l i e f in the comp l a int .

56

substantive

Because no c l a im is

..
acti onab l e ,

for the reasons set forth h e re i n ,

the feder a l

securities fraud c l a ims w i l l b e dismissed i n the ir entirety .

IX .

P l a i nti f f s '

Reque s t t o Amend the Compl a i n t

I n de fend ing against th i s m o t i o n t o d i sm i s s ,

p l a int i f f s have supp l ied this court with numerous mater i a l s

out s ide the p l e ad i ngs .

One o f these i s a document enti t l ed the

" Laventhol Report , " a future appraisal o f the T a j which i s not

We have held that these materia l s ,

referenced in the p r o s pectus .

i n c l u d ing the Laventh o l Report ,

are not to be cons idered a s part

o f this m o t i o n to dism i s s .
Howeve r ,

p l a inti f fs have requested leave t o amend

the i r comp l a i n t as an a l ternat ive to d i s m i s s a l . 1 2

to amend i s generally t o be l ibera l ly granted ,
Remco Baby, I nc . ,

761 F .

Supp .

1164

(D.N.J.

Wh i l e l eave

see Panzca v .

1991 ) ,

it should not

be granted i f s u ch an amendment would be futi l e .

See S i nay ,

F . 2 d a t 1 0 4 1 - 4 2 ; Ma sarsky v .

7 0 6 F . 2d 1 1 1 ,

General Motors Corp ,

948

12 .
I n fact , p l a inti f f s have not comp l i ed w i th our l oc a l rules
P l a int i f fs
concern i ng mot i on s for l e ave to amend a comp l a int .
have merely n o t ed in the i r oppos i t i on b r i e f the i r opin i o n that
" [ e ) ven i f the Comp l a int is held to be d e f ect ive , any defects c a n
be e a s i l y remed i ed , " a n d cited in a footnote t o the prop o s i t i on
that l eave t o amend a comp l a i nt is to be freely given pursuant t o
Fed . R . C iv . P . 1 5 ( a ) .
However , N e w Jersey Federal Pract i c e Rule
: 2 H provides that a motion to amend is to be f i l ed , together with
P l a i nt i f f s
" a copy o f the proposed pleading or amendments . . . . "
ne ither f i led a mot i on , nor attached t o the i r brief any proposed
amendment , thu s leav ing us without gu idance a s to how they would
amend the ir comp l a i nt i f granted l eave .
Desp ite the p rocedural
irregu l a r i t i e s , in the interests o f j us t i ce we w i l l cons ider
p l a i nt i f f s ' request as a formal motion to amend .
Th i s requires
us to extrap o l ate from p l a i nt i f f s ' subm i s s i ons the substance o f
any amendment t o the ir comp l a i nt .
57

(
125

( Jd Cir . ) ,

say ,

cert .

den i ed ,

464 U . S .

934

( 19 8 3 ) .

That i s t o

i f the amendment c o u l d not survive a mot i o n to d i sm i s s ,

leave to amend w i l l not be granted .

p l a i nt i f f s '

A c c o rd i n g l y ,

request for l eave to amend ,

then

i n cons i d e ring

we must a l s o cons i d e r the

additional mater i a l s they have submitt ed ,

on the a s sumpt i o n that

these mater i a l s would be the b a s i s o f any propos e d amendmen t . 1 3

O f part i c u l a r import i n t h i s c a s e i s the
restriction that " ( a ) mendments relat i ng to proj e c t i o n s or
expectat ions o f fered to

induce investments must a l l eg e particular

facts demonstrating the knowledge of d e fendants at the time that

such stateme n t s were made . "
p l a i nt i f f s '

submi ss ions

Luce ,

8 0 2 F . 2 d at 5 7 .

We exami n e

i n l i ght o f this s tandard .

F i r s t and foremost i s the Laventhol Report .

Prepared by the account i ng f i rm o f Laventhol and Horwath i n 1 9 8 7 ,
the Laventho l
I nc . ,

Report wa s comm i s s i oned by R e s o rt s I nt e rnat i on a l ,

the orig i n a l deve l o p e r o f the T a j

in September 1 9 8 7 ,

I t was i s sued

prior to commencement o f the deal which

tran s ferred ownership o f the Taj

l anguage was

pro j ect .

to T rump .

The f o l l ow i ng

i n c l uded i n the introductory l etter to the report :

" Our report i s

intended s o l e l y for the i n forma t i on o f the

13 .
In fact , at oral a rgument coun s e l f o r p l a i n t i f f s
e f fectively w i thdrew any request for amendmen t , stat i ng that the
comp l a int cou l d stand on its own as i s , w i thout any need f o r
I t i s we l l s e tt l ed that it i s not a n abuse o f
rev i s i on .
di scret ion f o r a d i st r i c t court to r e f u s e to grant amendment
where amendment is not s ought .
S ee , Roma n i , 9 2 9 F . 2 d a t
8 8 0 -8 8 1 .
Howev e r , i n t h e f a c e o f con f l i ct ing messages from
p l a i n t i f fs and the subm i s s i o n o f add i t i on a l mater i a l s , and
adhering to our duty to draw a l l reasonab l e i n f erences in
p l a i nt i f f s ' f a vor , we w i l l cons ider amend ing the comp l a i nt .
58

(
o f f i ce r s ,

d irectors and shareholders o f Resorts Internat i onal ,

Inc .

i f des ired ,

and ,

Jersey .

Otherwi se ,

referred to
. . .

or

the Cas ino contro l Comm i s s ion o f New

neither th i s report nor its commen t s may be

quoted in any regi stration statement ,

o r document wi thout our prior written consent . "

p r o s pectus ,
P l a i nt i f f s '

Exh i b i t A a t 2 .
The Laventhol Report ' s proj ecti ons o f future
income and cash f l ow for the Taj Maha l d i f fer markedly from the
AGI Report proj ect ions incl uded in the prospectus .

I ndeed ,

Laventhol Report proj ection s ,

m i rr o r more

a s it has turned out ,

accurately the actual economic performance o f the T a j .

the

Howeve r ,

these p o ints cannot in themselves serve as the basis o f a n

amended comp l a int which could survive another 1 2 ( b ) ( 6 )
First ,

mot i o n .

the Laventhol Report i s at most independent ev idence that

might tend to show that the AGI Report referenced in the

prospectus was false and m i s l e ading .

But it i s not factual

support for the al legat i o n that there was no reasona b l e b a s i s for

re l i ance on the AGI Report .

Furthermore ,

defendants were under

no o b l igation to include the Laventhol Report proj e c t i o n s

prospectus .

in the

Management i s not required by the secur i t i e s f raud

l aws t o d i s c l ose other compa n i e s '

d i s c l osure requi rements ,

papers .

Comp l iance w ith the

i f such a burden were impo s e d ,

would

border on the impos s ib l e .

Neither were defendants autho r i z ed to
Laventhol Report in the prospectus ,
restrictions

i n c lude the

as evidenced by the

indicated on the face of the report itse l f .

59

And ,

(
this

i s as suming that de fendants even had knowledge o f the

Laventhol Report when prep a ring the prospectus ,

prepared s o l e l y for Res o rt s .

In short ,

the Laventhol Report was

neither prepared for use in a prospectu s ,

ref erence i n a prospectus ,

as it was

nor author i z e d f o r

n o r comm i s s i oned b y defendants ,

nor

even comm i s s ioned by Resorts with the s a l e to Trump i n mind .

Moreover ,

the cover letter t o the Laventhol Report

stated that the report rel ied on assumpt ions ,

some o f which

" i nevitably w i l l not mater i a l i z e , and unant i c ipated events and

c i rcumstances may occur ;

there f o re ,

any actual resul t s achieved

during the period of the prospective a n a l yses w i l l vary from the

est imates ,

and the variations may be mater i a l . "

Exh i b i t A at 2 .

P l a i nt i f f s '

This kind o f qua l i f ication is substantively no

d i f ferent from the sort o f cauti onary l anguage which appeared in

the prospectus regarding the AGI Report .

Indeed ,

p l a intifs own

comp l a i nt ind i cates that the Laventhol Report could not correct
the d e f i c i encies we have h ighl ighted in this opinion .
c l a im that at the time the prospectus was f i l ed ,

P l a intiffs

" it w a s

i mp o s s i b l e to make any reasonabl e estimate o f the Taj Maha l ' s

future income . "

How ,

then ,

can the Laventhol Report have been a

reasonable est imate o f future worth any more than the attacked
AGI Repo rt ?

It is clear that introduct i on o f the Laventhol

Report into the comp l a int would do nothing more than attempt to
estab l i sh ,

yet again ,

d i scussed supra ,

fraud by hindsight .

For the reasons

such a c l a im is not actionab l e .

60

(
F inal l y ,

the Laventhol Report itsel f ,

the de fects we have l i sted here ,

secur i t i e s fraud c l a im .
the Laventho l Report ,

even without

is i n s u f f i cient to support a

Were the comp l a i nt amended to i n c l ud e

s t i l l i t would " o f fer [ ]

n o i nforma t i o n

other than the d i f ferences between the t w o statements o f the

f i rm ' s cond i t i on .

Because only a fract io n o f f inanc i a l

determi n a t i o n s refl ects fraud ,

p l a i nt i f f s may n o t pro f f e r the

di f ferent f i nancial s tatements and rest .

Investors must p o i n t to

some facts suggesting that the d i f ference is attr ibutab l e to

fraud . "

D i Leo ,

examp l e o f

9 0 1 F . 2 d at 6 2 7 .

We are faced with yet another

fraud by hinds ight rearing i t s ugly head .

for a l l the reasons enumerated here ,

Thus ,

and

no amendment b a s ed on the

Laventhol Report could survive dismissa l .

P l a i nt i f f s '
cursory comment .
and Horwath ,

rema i n i ng subm i s s i o n s require o n l y

An a f f idav it by Peter R .

Tyson ,

o f Laventhol

tes t i f i es that the Laventho l Report was comm i s s ioned

by Resorts " because they were mapping corporate strategy . "

P l a i nt i f f s '

Exhibit c at 3 .

Th is in f a c t corroborates our view

that defendants had no obl igation to r e l y on proj ections

s o l i c ited by another c o rporate entity for ent irely d i f ferent
purposes in the past .

The a f f idavit a l s o attempts to g l o s s over

the use which p l a int i f f s seek to make o f the Laventhol Report :

one o f the scenarios a n t i c ipated i n the report env i s ioned Res orts
ontinu ing to operate the Taj whi l e s e l l i ng o f f Resorts
Internat i o n a l C a s i n o and Hotel to other management ,

and

D l a in t i f f s argue that this s i tuation happened " in reverse , " with

61

(
the Taj

instead be ing s o l d o f f and operated by the T rump

defendants .

However ,

hinds ight defense ,

t h i s a l s o corroborates d e fendant s

fraud b y

f o r i f the Laventhol Report stated it was

specu lat ive how the Taj

would perf orm under R e s o rt s

management ,

it was even more specu l at ive how it woul d p e r form under other
management , whether de f endants or any other p o t ent i a l buy e r .
Another document ,

a dep o s it i o n transcript which

purports to speak to Merr i l l Lynch ' s due d i l igence as the

underwriter , is irre l evant ,

as we have not had to reach that

issue in d i s m i s s ing the comp l a int .

The rema i n i ng documents

s imilarly do not cont a i n facts demonstrat ing the knowledge of

defendants at the time the a l l eged mi s represent a t i ons were made ,
or anything wh ich cou l d alt er our conclus ions reached i n thi
opinion .
Accord i ngl y ,
amend is den i ed ,

p l a i nt i f f s '

que s t i onable request to

and our dismissal o f the comp l a int i s w ith

prej udice .

Pendent State Law C l a ims

x.

Because p l a inti f fs '

dism i s sed in the i r ent i rety ,

federal c l a ims w i l l be

we cannot retain j ur i sd iction over

the pendent state l aw c l a ims .

United M i ne Workers v .

U.S.

the pendent c l a im s for breach o f

715

( 19 6 6 ) .

Accordingl y ,

Gibb s ,

383

fiduciary duty and f a l s e advertis ing w i l l b e d i sm i s sed w i thout

prej ud ice .

62

(
' "

conclus ion

XI .

our rul ing here is based on our b e l i e f that

p l a int i f fs should not be permitted to d i stort the p l a i n meaning
o f the prospectus in order to state a c l a im ,

o r to rely on

iso l ated statements buried in the midst of the document while

overlooking prominent ,

consp icuous warn i ngs at the beginn i ng o f

the document a s well a s immediately surrounding the cha l l enged

statements .

N e ither can p l a int i f f s b a s e a secu r i t i es fraud claim

on an a.t tempt to " rewri t e " the prospectus in order t o phrase the
cautionary l anguage in terms they f ind more suitable but without
any pract i c a l d i f f erence in ef fect ,
by hinds ight ,

nor on a l l egati ons of fraud

nor on a l l ega t i ons o f securities fraud devo i d o f

factual ba s i s .
of p l a int i f f s '

Because the se very defects represent the e s s ence

comp l a int ,

and because they are not amenab l e to

correct ion by an amendment ,

the comp l a int is d i smi s s ed with

=

pre j udice .

..
,.\
.

14

An appropriate order

June 2 ,

DATED :

be entered .

\ '.

. /-\

19 9 2 .

14 .

Final l y , we feel obl iged to not

the
pendancy o f
to disqual i fy p l a int i f f s ' co-l ead couns el , Richard Green f i e l d ,
c l a s s couns e l , and h i s c l i ent , F a i rmount , a s a c l a s s
The bas i s o f th i s motion to d i squa l i fy i s M r .
representat ive .
Green f i elds and Fairmount ' s a l l eged con f l i cts o f interest between
this l itiga t i on and l i t igation involving T rump ' s C a s t l e Cas ino &
Hotel and Trump ' s P l a z a Cas ino & Hotel .
The motion t o d i s qual.i fy
The presence o r
in no way impacts upon this motion to d i sm i s s .
absence o f e i ther Mr . Green f i e l d or F a i rmount does n o t a l t e r in
any way the sub stantive and contro l l ing i s sues which d i ctate the
result reached here .

l. I

....

63

UNITED STATES DI STRICT COURT

D I STRICT OF NEW JERSEY

i,.T f:31
1-VIlliAM T. WALSM
ClERK

_______

IN RE :
MDL 8 6 4

DONALD J . TRUMP CASINO

SECUR I T I E S LITIGATION
TAJ MAHAL LIT IGATION

( J FG )

( t iv i l Act ion No .

90-0919)

ORDER

This matter having come b e fore the court upo n

mot i?n o f d e f endants Donald J .
Freema n ,

Trump ,

The Trump Orga n i z at i o n ,

Trump Taj

Mahal Inc .

Robert S .

Inc . ,

and Trump Taj

Civ .

P.

P i e rc e ,

Fenner

12 ( b ) ( 6 ) ,

subm i s s ions ,

&

T a j Mahal Funding ,

Smith for di smi s s a l pursuant to F e d .

and for good cause shown ;

that d e fendant s '

I nc . ,

and o f defendant Merri l l ,

and the court having considered the

It is ,

Harvey s .

Mahal Assoc i ates Limited

( co l l e ct i v e l y " the Trump defendants " ) ,

Lynch ,

Trump ,

t h i s 2 nd day o f June ,

motion i s GRANTED ,

199 2 ,

R.

hereby ORDERED

and the comp l a int i s hereby

DI S M I S S E D with prejudice .

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64