Page:In re Donald J. Trump Casino Securities Litigation.pdf/10

 Act. of 1933 (the “1933 Act”), 15 U.S.C. §§ 77k(a), 77l(2), 77o. Count two of the complaints alleged fraud in the prospectus, based on the same alleged misrepresentations and omissions, but in violation of §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “1934 Act”) and Rule 10(b)(5) promulgated thereunder, 15 U.S.C. §§ 78j(b), 78t(a), and 17 C.F.R. § 240.10(b)–5. Counts three and four alleged state common law claims.

The defendants moved to dismiss the complaints pursuant to Rule 12(b)(6), asserting that the plaintiffs had failed to state actionable securities fraud claims, and also pursuant to Fed.R.Civ.P. 9(b), contending that the plaintiffs failed to plead their fraud allegations with sufficient particularity. The district court granted the defendants’ motion under Rule 12(b)(6), reasoning that the abundance of cautionary statements that directly addressed the alleged misrepresentations and omissions rendered the plaintiffs’ claims nonactionable as a matter of law. See In re Donald J. Trump Casino Sec. Litig., 793 F.Supp. 543 (D.N.J.1992). The district court also rejected the plaintiffs’ motion to amend their complaints to add allegations based on an appraisal of the future value of the Taj Mahal which had been issued by the accounting firm of Laventhol and Horwath (“the Laventhol Report”). The district court did not reach the defendants’ motion to dismiss based on Rule 9(b). Having disposed of the federal claims, the court subsequently dismissed the plaintiffs’ claims of breach of fiduciary duty and false advertising without prejudice for lack of pendent jurisdiction. 793 F.Supp. at 568. This appeal followed.

The district court had jurisdiction over the federal securities law claims under 15 U.S.C. §§ 77v and 78aa and over the state law claims under 28 U.S.C. § 1367. We have jurisdiction under 28 U.S.C. § 1291. We exercise plenary review over the district court’s dismissal of the plaintiffs’ complaint under Rule 12(b)(6). ''Marshall-Silver Constr. Co. v. Mendel'', 894 F.2d 593, 595 (3d Cir.1990). In this regard, we must accept the plaintiffs’ factual allegations as true and give the plaintiffs the benefit of the inferences which we may fairly draw from them. See Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974).

The plaintiffs allege that the prospectus contained material misrepresentations. Their principal claim is that the defendants had neither an honest belief in nor a reasonable basis for one statement in the MD & A section of the prospectus: “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).” Before the district court and again before us, the plaintiffs concentrate on this statement and its allegedly misleading character.

The plaintiffs also argue that the prospectus was misleading in its omission of allegedly material information. The plaintiffs submit that the prospectus failed to disclose, inter alia, that: 1) the Taj Mahal required an average “casino win” of approximately $1.3 million per day on a continuing basis in order