Page:In re Donald J. Trump Casino Securities Litigation.pdf/11

 to service its debtload; 2) Donald Trump had personally guaranteed hundreds of millions of dollars in bank loans for other properties; and 3) the Taj Mahal had an “unprecedented” debt to equity ratio. The plaintiffs contend that these allegedly material misrepresentations and omissions form the basis for actionable securities fraud claims and that, to the extent that the prospectus contained cautionary language, the district court improperly considered the effect of this language on a motion to dismiss.

The defendants respond that the myriad warnings and cautionary statements contained in the prospectus sufficiently disclosed to the bondholders the multifarious risks inherent in the investment. With respect to the plaintiffs’ primary argument—that the statement relating the Partnership’s belief in the Taj Mahal’s capacity to generate ample income for the Partnership to make full payment on the bonds was materially misleading—the defendants contend that there was also adequate cautionary language surrounding this statement to render it nonactionable as a matter of law. That is, they insist that when a prospectus (such as this one) contains abundant warnings and cautionary statements which qualify the statements plaintiffs claim they relied upon, plaintiffs cannot, as a matter of law, contend that they were misled by the alleged misrepresentations and/or omissions.

As we noted above, the JPML transferred a number of complaints that different plaintiffs had filed in the Southern and Eastern Districts of New York to the District of New Jersey for consolidated pre-trial proceedings pursuant to 28 U.S.C. § 1407. At oral argument, the question arose whether the district court possessed the authority to terminate the transferred cases under Rule 12(b)(6). Surprisingly, no judicial precedent addresses this point, so we take this opportunity to make clear that § 1407 empowers transferee courts to enter a dispositive pre-trial order terminating a case.

Section 1407 authorizes the consolidation and transfer of civil actions containing common questions of fact “for coordinated or consolidated pretrial proceedings.” 28 U.S.C. § 1407(a). The section further directs that the transferee court should remand the case to the transferor court “unless it shall have been previously terminated,” which suggests that Congress contemplated that transferee courts would dismiss cases in response to dispositive motions. The dismissal of a complaint under Rule 12(b)(6) constitutes such a pre-trial proceeding.

Apparently, transferee courts frequently terminate consolidated cases in practice. See In re Korean Air Lines Disaster, 829 F.2d 1171, 1176 n. 9 (D.C.Cir.1987) (noting that as of 1986 transferee courts had terminated over two-thirds of all cases subject to § 1407 proceedings), aff’d sub nom. Chan v. Korean Air Lines, Ltd., 490 U.S. 122, 109 S.Ct. 1676, 104 L.Ed.2d 113 (1989). Moreover, the practice comports with the rules the JPML promulgated pursuant to § 1407, see Rule 14(a)