Page:In re Donald J. Trump Casino Securities Litigation.pdf/17

This page has been proofread, but needs to be validated.

IN RE DONALD J. TRUMP CASINO SECURITIES LIT.
Cite as 7 F.3d 357 (3rd Cir. 1993)

373

underscores that when the subject of a misrepresentation or omission is such that the accompanying language does not diminish the importance of the misrepresentation or omission to the investor, the misrepresentation or omission remains actionable. In a word, a misrepresentation or omission is actionable when materially misleading.

This reading of Virginia Bankshares just restates what what we explained above, namely, that materiality involves a context-specific analysis such that warnings and cautionary language will sometimes suffice to render the allegedly misleading misrepresentations or omissions immaterial as a matter of law. We understand Virginia Bankshares to indicate that if the nature of the subject matter or the manner of presentation of an alleged misrepresentation or omission or its accompanying statements is such that for a reasonable investor the accompanying statements do not offset the misleading effect of the misrepresentation or omission, then bespeaks caution is unavailable as a defense. Therefore, contrary to the plaintiffs’ assertion, we believe that our analysis comports with the Supreme Court’s reasoning in Virginia Bankshares.^[1]

D. Conclusion

Returning to the instant case, we think it clear that the accompanying warnings and cautionary language served to negate any potentially misleading effect that the prospectus’ statement about the Partnership’s belief in its ability to repay the bonds would have on a reasonable investor. The prospectus clearly and precisely cautioned that the bonds represented an exceptionally risky, perhaps even speculative, venture and that the Partnership’s ability to repay the bonds was uncertain. Given this context, we believe that no reasonable jury could conclude that the subject projection materially influenced a reasonable investor.^[2]

↑ In Mayer v. Mylod, 988 F.2d 635 (6th Cir.1993) the Sixth Circuit clarified and narrowed its decision in Sinay v. Lamson & Sessions Co., 948 F.2d 1037 (6th Cir.1991), which appeared to apply the bespeaks caution doctrine liberally, to eliminate any potential conflict with Virginia Bankshares. Contrary to the plaintiffs’ argument, the interpretation of Virginia Bankshares in Mayer is consistent with ours.

In Sinay, the Sixth Circuit had held, apparently without reservation, that “[e]conomic projections are not actionable if they bespeak caution.” 948 F.2d at 1040. In considering this broad statement in Mayer, the Sixth Circuit acknowledged its potential tension with the Supreme Court’s recognition in Virginia Bankshares that, although the effect of some misrepresentations will be negated by the inclusion of other statements, “not every mixture with the true will neutralize the deceptive.” Virginia Bankshares, – U.S. at —, 111 S.Ct. at 2760 (emphasis added), quoted in Mayer, 988 F.2d at 639. The Mayer court thus properly recognized that in light of Virginia Bankshares its earlier statement, which one could have read to indicate that economic projections coupled with warnings and cautionary statements are per se non-actionable, was overbroad. Because we do not establish a sweeping rule that cautionary statements will always render misrepresentations or omissions immaterial as a matter of law, we believe that the Mayer court’s understanding of Virginia Bankshares is harmonious with our approach here.
↑ The plaintiffs have also alleged that the prospectus was materially misleading in its estimation that as of its opening date the Taj Mahal would be worth approximately $1.1 billion. An independent appraisal conducted by the Appraisal Group International (“AGI”) had arrived at that estimate. The plaintiffs submit that this estimate lacked an adequate basis in fact because AGI based it on “ ‘the capitalization of income approach,’ even though at the time of the Prospectus it was impossible to make any reasonable estimate of the Taj Mahal’s future income.” Complaint at ¶ 37.

We conclude that, given the text of the prospectus, the plaintiffs have failed to state a claim under the securities laws through this allegation. As we discussed more fully above, see supra Part IV.B, the prospectus explicitly disclosed that the Taj Mahal, as a new enterprise, lacked any operating history, including any history of earnings. Moreover, the prospectus clearly and precisely set forth the speculative nature of this estimate and the consequent uncertainty that the Taj Mahal would actually be worth $1.1 billion by its opening date. This cautionary discussion, in combination with the more general warnings which alerted investors to the variety of highly uncertain circumstances the Taj Mahal confronted, rendered the estimate of the Taj Mahal’s worth on its opening date immaterial.

We further note that the plaintiffs’ allegation concerning the appraisal report fails to satisfy the particularity requirements of Rule 9(b), which at least applies to the plaintiffs’ claims brought under § 10 and Rule 10b–5. See Shapiro v. UJB Fin. Corp., 964 F.2d at 288 (leaving open the question whether Rule 9(b) always applies to claims brought under §§ 11 and 12(2) even when they sound in negligence rather than fraud). The complaint fails to allege (i) what

[1] In Mayer v. Mylod, 988 F.2d 635 (6th Cir.1993) the Sixth Circuit clarified and narrowed its decision in Sinay v. Lamson & Sessions Co., 948 F.2d 1037 (6th Cir.1991), which appeared to apply the bespeaks caution doctrine liberally, to eliminate any potential conflict with Virginia Bankshares. Contrary to the plaintiffs’ argument, the interpretation of Virginia Bankshares in Mayer is consistent with ours.

In Sinay, the Sixth Circuit had held, apparently without reservation, that “[e]conomic projections are not actionable if they bespeak caution.” 948 F.2d at 1040. In considering this broad statement in Mayer, the Sixth Circuit acknowledged its potential tension with the Supreme Court’s recognition in Virginia Bankshares that, although the effect of some misrepresentations will be negated by the inclusion of other statements, “not every mixture with the true will neutralize the deceptive.” Virginia Bankshares, – U.S. at —, 111 S.Ct. at 2760 (emphasis added), quoted in Mayer, 988 F.2d at 639. The Mayer court thus properly recognized that in light of Virginia Bankshares its earlier statement, which one could have read to indicate that economic projections coupled with warnings and cautionary statements are per se non-actionable, was overbroad. Because we do not establish a sweeping rule that cautionary statements will always render misrepresentations or omissions immaterial as a matter of law, we believe that the Mayer court’s understanding of Virginia Bankshares is harmonious with our approach here.

[p373-2] The plaintiffs have also alleged that the prospectus was materially misleading in its estimation that as of its opening date the Taj Mahal would be worth approximately $1.1 billion. An independent appraisal conducted by the Appraisal Group International (“AGI”) had arrived at that estimate. The plaintiffs submit that this estimate lacked an adequate basis in fact because AGI based it on “ ‘the capitalization of income approach,’ even though at the time of the Prospectus it was impossible to make any reasonable estimate of the Taj Mahal’s future income.” Complaint at ¶ 37.

We conclude that, given the text of the prospectus, the plaintiffs have failed to state a claim under the securities laws through this allegation. As we discussed more fully above, see supra Part IV.B, the prospectus explicitly disclosed that the Taj Mahal, as a new enterprise, lacked any operating history, including any history of earnings. Moreover, the prospectus clearly and precisely set forth the speculative nature of this estimate and the consequent uncertainty that the Taj Mahal would actually be worth $1.1 billion by its opening date. This cautionary discussion, in combination with the more general warnings which alerted investors to the variety of highly uncertain circumstances the Taj Mahal confronted, rendered the estimate of the Taj Mahal’s worth on its opening date immaterial.

We further note that the plaintiffs’ allegation concerning the appraisal report fails to satisfy the particularity requirements of Rule 9(b), which at least applies to the plaintiffs’ claims brought under § 10 and Rule 10b–5. See Shapiro v. UJB Fin. Corp., 964 F.2d at 288 (leaving open the question whether Rule 9(b) always applies to claims brought under §§ 11 and 12(2) even when they sound in negligence rather than fraud). The complaint fails to allege (i) what

[1]

[2]