Cite as 7 F.3d 357 (3rd Cir. 1993)
complete construction of the Taj Mahal; and (3) open the Taj Mahal for business.
As is well-known, the Taj Mahal was widely touted as Atlantic City’s largest and most lavish casino resort. When ultimately opened in April, 1990 it was at least twice the size of any other casino in Atlantic City. It consisted of a 42-story hotel tower that contained approximately 1,250 guest rooms and an adjacent low-rise building encompassing roughly 155,000 square feet of meeting, ballroom and convention space, a 120,000 square foot casino, and numerous restaurants, lounges and stores. The entire structure occupied approximately seventeen acres of land.
The prospectus accompanying the bonds estimated the completion cost of the Taj Mahal, including the payment of interest on the bonds for the first fifteen months of operation, at $805 million. It explained that, to obtain that amount, the Trump defendants were relying on the $675 million in bond proceeds, a $75 million capital contribution by Donald Trump, investment income derived from those sums, a contingent additional loan of $25 million from the Trump Line of Credit, and loans from other sources.
Plaintiffs ground their lawsuits in the text of the prospectus. Their strongest attack focuses on the “Management Discussion and Analysis” (“MD & A”) section of the prospectus, which stated: “The Partnership believes that funds generated from the operation of the Taj Mahal will be sufficient to cover all of its debt service (interest and principal).” See Complaint at ¶ 32. The plaintiffs’ primary contention is that this statement was materially misleading because the defendants possessed neither a genuine nor a reasonable belief in its truth. However, as the defendants emphasize, the prospectus contained numerous disclaimers and cautionary statements in conjunction with this statement. The cautionary statements stressed, among other things: the intense competition in the casino industry; the absence of an operating history for the Taj Mahal which could serve as a basis for its valuation; the unprecedented size of the Taj Mahal casino in Atlantic City; and the enterprise’s potential inability to repay the interest on the bonds in the event of a mortgage default and subsequent liquidation of the Taj Mahal.
After learning that the Trump defendants planned to file Chapter 11 bankruptcy proceedings and establish a reorganization plan, various bondholders filed separate complaints in the United States District Courts for the Southern District of New York, the Eastern District of New York and the District of New Jersey. The complaints each alleged that the prospectus accompanying the issuance of the bonds contained material misrepresentations and material omissions in violation of the 1933 and 1934 Acts. Pursuant to 28 U.S.C. § 1407, the JPML subsequently transferred the complaints for consolidated pre-trial proceedings to the District of New Jersey. See MDL Docket No. 864 (In re Donald J. Trump Sec. Litig.).
The consolidated complaints pleaded four counts, In count one, the plaintiffs alleged that the prospectus contained misrepresentations and omissions of material fact in violation of §§ 11,[1] 12(2)[2] and 15 of the Securities
- ↑ Section 11(a) provides in pertinent part:
In case any part of the registration statement, when such part became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, any person acquiring such security … may … sue—
(1) every person who signed the registration statement;
(2) every person who was a director of or partner in the issuer at the time of the filing of the part of the registration statement with respect to which his liability is asserted:
· · · · · (5) every underwriter with respect to such security.
15 U.S.C. § 77k(a).
- ↑ Section 12(2) establishes the liability of any seller or offeror of a security who:
by means of a prospectus or oral communication … includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading (the purchaser not knowing of such untruth or omission), and who shall not sustain the burden of proof that he did not know, and in the exercise of reasonable care could not have known, of such untruth or omission….
15 U.S.C. § 77l(2).
