GERRY, Chief Judge
The parties are presently before the court upon motion of defendants Donald J. Trump, Robert S. Trump, Harvey S. Freeman, The Trump Organization Inc., Taj Mahal Funding Inc., Trump Taj Mahal Inc., and Trump Taj Mahal Associates Limited (collectively "the Trump defendants") and defendant Merrill, Lynch, Pierce, Fenner and Smith ("Merrill Lynch") for dismissal with prejudice, pursuant to Fed. R. Civ. P. 12(b)(6). For the reasons expressed herein, defendants' motion is granted.
The Taj Mahal ("the Taj") is a hotel/casino located on the boardwalk in Atlantic City, New Jersey. The project was initiated by Resorts International, Inc. ("Resorts") but was later sold to the Trump defendants. In 1988, as the primary source of funding for the Taj, the Trump defendants offered and Merrill Lynch underwrote $ 674 million in 14% first mortgage investment bonds ("the bonds"). The bonds were issued pursuant to a prospectus dated November 9, 1988 ("the prospectus").
After learning that the Taj intended to file Chapter 11 bankruptcy and establish a reorganization plan, various bondholders filed separate complaints in the Southern District of New York, the Eastern District of New York, and the District of New Jersey, alleging essentially similar claims that the prospectus included misrepresentations and omissions which violated federal securities fraud laws. The complaints were consolidated in multi-district litigation in this court. Plaintiffs await class certification.
In May, 1991, the parties reached a tentative settlement agreement, memorialized in a "Memorandum of Understanding" ("MOU"). The MOU provided for plaintiffs to conduct "confirmatory discovery" to determine whether they believed the settlement to be a fair disposition of the case. In October 1991, the plaintiffs returned from confirmatory discovery seeking to cancel the settlement deal. Defendants moved before this court for an order allowing them to solicit approval by the plaintiff class of the proposed settlement, over the objections of all plaintiffs' counsel. We denied that motion in a memorandum opinion and order dated November 15, 1991. This motion to dismiss, filed jointly by the Trump defendants and Merrill Lynch, followed.
Count one of plaintiffs' complaint alleges that the prospectus "contained untrue statements of material facts and omitted to state material facts required to be stated therein which were necessary to make the statements therein not misleading," in violation of sections 11, 12(a) and 15 of the Securities Act of 1933. Count two alleges fraud in the prospectus in violation of sections 10(b) and 20(b) of the Exchange Act of 1934, and Rule 10b-5 promulgated thereunder. Count two also alleges, as part of the securities fraud claim, that the prospectus contained false and misleading information.
Count three, a breach of fiduciary duty claim, is lodged only against defendant Donald Trump. Count four is a common law false advertising claim. Counts three and four present solely state law claims, which depend for their survival on this court retaining jurisdiction over the federal securities claims.
The prospectus is a lengthy, detailed document. On the first page this notice appears in bold print: "See 'Special Considerations' for a discussion of certain factors to be considered by potential investors." There follows a section entitled "PROSPECTUS SUMMARY" which notes inter alia that "upon completion, the Taj Mahal will be the largest casino/hotel facility in Atlantic City." Prospectus, at 3.
Included in the prospectus summary is a synopsis of the Special Considerations section:
There are special considerations associated with an investment in the Bonds. These special considerations include, among others, the ability of the Partnership to service its debt; the validity of the security of the Bonds; the possible effect of applicable fraudulent conveyance statutes; the risks regarding completing and opening the Taj Mahal; the terms of the Trump Completion Guaranty; potential conflicts of interest; competition; imitation of liability; management of the Taj Mahal; certain regulatory matters, including matters affecting ownership of the Bonds; absence of a public market for the Bonds; the maintenance of insurance; and the appraisals of the Taj Mahal.
Prospectus at 4. The "Special Considerations" section opens with the following notice, in italicized print:
Before making a decision to purchase any of the Bonds, prospective purchasers should consider carefully the following factors, among others set forth in this Prospectus, which could materially adversely affect (i) the operations of the Partnership and its ability to make necessary payments to the Company to meet the debt service requirements of the Bonds and (ii) the security for the Bonds.
Prospectus at 8 (emphasis added). Each special consideration listed in the "Special Considerations" synopsis constitutes a subject matter heading under the "Special Considerations" section, and is explained in considerable detail there.
Following the "Special Considerations" section is the meat and potatoes of the prospectus, "Management's Discussion and Analysis of Financial Conditions and Results of Operations of the Partnership and the Company" ("Management's Discussion"). The entire prospectus is replete with cross-references directing potential investors to related portions of the prospectus.
I. Standards on Motion to Dismiss
A Rule 12(b)(6) motion to dismiss for failure to state a claim upon which relief may be granted must be denied "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Scheuer v. Rhodes, 416 U.S. 232, 236, 40 L. Ed. 2d 90, 94 S. Ct. 1683 (1974). We must accordingly consider the factual allegations of the complaint as true, construe them liberally, and draw all reasonable inferences in plaintiffs' favor. See Unger v. National Residents Matching Program, 928 F.2d 1392 (3d Cir. 1991); Glenside West Corp. v. Exxon Co., U.S.A., Div. of Exxon Corp., 761 F. Supp. 1100 (D.N.J. 1991); Gutman v. Howard Sav. Bank, 748 F. Supp. 254 (D.N.J. 1990); Leaty v. U.S., 748 F. Supp. 268 (D.N.J. 1990). If, applying these standards, plaintiffs cannot state an actionable claim, the complaint must be dismissed.
We take this occasion to comment on the extent to which this court may consider matters outside the pleadings on a 12(b)(6) motion to dismiss. In opposing defendants' motion, plaintiffs have submitted considerable materials, including affidavits, deposition transcript excerpts, and an appraisal report, accompanied by an identifying affidavit. Plaintiffs urge that we may consider these materials, which are clearly matters outside the pleadings, without converting the 12(b) motion into a Rule 56 motion for summary judgment. We disagree.
Plaintiffs rely on Swin Resource Systems v. Lycoming County, 883 F.2d 245, 247 (3d Cir. 1989), cert. denied, 493 U.S. 1077, 110 S. Ct. 1127, 107 L. Ed. 2d 1033 (1990), for the proposition that extraneous materials that "fall within the ambit of the complaint" may be considered on a motion to dismiss. In fact, in Swinn the extraneous material considered -- a deposition -- was attached to the complaint at the time of filing. Plaintiffs here attached no materials, not even the prospectus, to their complaint. The depositions and other materials they now urge us to consider as falling within the ambit of the complaint were never submitted to this court until plaintiffs opposed the current motion. We do not think that these materials fall within the ambit of the complaint, as courts in this circuit have used that phrase.
The materials which plaintiffs urge us to consider are the stuff of summary judgment motions, not motions to dismiss under 12(b)(6).
II. Choice of Law
A threshold question is which circuit's law should be applied to judge the actionability of the prospectus. Although the case has been consolidated in this district, within the Third Circuit, the underlying cases come not only from this district but also from the Southern District of New York and the Eastern District of New York, both within the Second Circuit.
The question to be decided is whether the law of the Third or Second Circuit controls our decision.
In a case consolidated under 28 U.S.C. § 1407, the law of the transferor forum must be given "close consideration," but the law of the transferee forum ultimately controls. In re Korean Air Lines Disaster of Sept. 1, 1983, 829 F.2d 1171, 1176 (D.C. Cir. 1987).
The federal courts spread across the country owe respect to each other's efforts and should strive to avoid conflicts, but each has an obligation to engage independently in reasoned analysis. Binding precedent for all is set only by the Supreme Court, and for the district courts within a circuit, only by the court of appeals for that circuit.