Cite as 7 F.3d 357 (3rd Cir. 1993)
U.S. 946, 106 S.Ct. 342, 88 L.Ed.2d 290 (1985). Therefore, the plaintiffs’ complaint does not falter just because it alleges that the defendants made a misrepresentation with their statement that they believed they would be able to repay the principal and interest on the bonds. Rather, the complaint cannot survive a motion to dismiss because ultimately it does not sufficiently allege that the defendants made a material misrepresentation.
The Supreme Court in TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 96 S.Ct. 2126, 48 L.Ed.2d 757 (1976), defined materiality within the proxy-solicitation context of § 14(a) of the 1934 Act. Subsequently the Court expressly made the TSC standard applicable to actions under § 10 and Rule 10b–5, see Basic Inc. v. Levinson, 485 U.S. 224, 232, 108 S.Ct. 978, 983, 99 L.Ed.2d 194 (1988), and we have made it applicable as well to claims under §§ 11 and 12(2) of the 1933 Act, see Craftmatic Sec. Litig. v. Kraftsow, 890 F.2d 628, 641 & n. 18 (3d Cir.1989). TSC instructs that “[a]n omitted fact is material if there is a substantial likelihood that a reasonable [investor] would consider it important in deciding how to [act].” 426 U.S. at 449, 96 S.Ct. at 2132. For an omission to be deemed material, “there must be a substantial likelihood that [its disclosure] would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available.” Id.[1]
As the statement quoted immediately above implies, materiality is a relative concept, so that a court must appraise a misrepresentation or omission in the complete context in which the author conveys it. See I. Meyer Pincus & Assocs. v. Oppenheimer & Co., 936 F.2d 759, 763 (2d Cir.1991).[2] In other words, a particular misrepresentation or omission significant to a reasonable investor in one document or circumstance may not influence a reasonable investor in another. We accordingly take into account not only the assertion that the Partnership believed the Taj Mahal could meet the obligations of the bonds, but also other relevant statements contained in the prospectus.
B. The Text of the Prospectus
The prospectus at issue contained an abundance of warnings and cautionary language which bore directly on the prospective financial success of the Taj Mahal and on the Partnership’s ability to repay the bonds. We believe that given this extensive yet specific cautionary language, a reasonable factfinder could not conclude that the inclusion of the statement “[t]he 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)” would influence a reasonable investor’s investment decision. More specifically, we believe that due to the disclaimers and warnings the prospectus contains, no reasonable investor could believe anything but that the Taj Mahal bonds represented a rather risky, speculative investment which might yield a high rate of return, but which alternatively might result in no return or even a loss. We hold that under this set of facts, the bondholders cannot prove that the alleged misrepresentation was material.
- ↑ In TSC the Court also indicated that setting the threshold for materiality too low would not serve the remedial purposes of the securities laws:
Some information is of such dubious significance that insistence on its disclosure may accomplish more harm than good…. [I]f the standard of materiality is unnecessarily low, not only may the corporation and its management be subjected to liability for insignificant omissions or misstatements, but [it] also … may cause [management] to bury the shareholders in an avalanche of trivial information—a result that is hardly conducive to informed decisionmaking.
426 U.S. at 448–49, 96 S.Ct. at 2132.
- ↑ Although materiality is a mixed question of law and fact which the trier of fact ordinarily decides, see TSC, 426 U.S, at 450, 96 S.Ct. at 2132–33; Shapiro, 964 F.2d at 280 n. 11, “if the alleged misrepresentations or omissions are so obviously unimportant to an investor that reasonable minds cannot differ on the question of materiality [it is] appropriate for the district court to rule that the allegations are inactionable as a matter of law. Shapiro, 964 F.2d at 280 & n. 11; accord TSC, 426 U.S. at 450, 96 S.Ct. at 2133; Craftmatic, 890 F.2d at 641.
