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TRUMP HOTELS & CASINO RESORTS, INC. v. MIRAGE RESO

May 1, 1997

TRUMP HOTELS & CASINO RESORTS, INC., Plaintiff,
v.
MIRAGE RESORTS INC., et. al., Defendants.



The opinion of the court was delivered by: ORLOFSKY

 ORLOFSKY, District Judge:

 Plaintiff, Trump Hotels & Casino Resorts, Inc. ("Trump"), has brought this action against Mirage Resorts Inc. ("Mirage"), the State of New Jersey, various state agencies, and the individuals in charge of those agencies in their official capacities, seeking a declaratory judgment and an injunction barring the construction of a highway and tunnel project, and the development of the Huron North Redevelopment Area (the "H-Tract"), both of which are, or are planned to be located in Atlantic City, New Jersey. The proposed highway, to be known as the Westside Connector, is intended to link the Atlantic City Expressway with Brigantine Boulevard, and will, if completed, facilitate access to, and the development of, the H-Tract.

 On April 10, Defendants moved to dismiss the complaint for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6). On that same day, defendants filed a complaint in the Law Division of the Superior Court of New Jersey, Atlantic County, seeking a declaratory judgment approving the funding mechanism which Trump challenges in this court as violative of the casino gambling amendment to the New Jersey Constitution. Indeed, Trump seeks declaratory relief on this same state constitutional issue in the seventh count of the complaint filed in this court. Because of the importance and novelty of the issues presented, as well as the pendency of a related state court proceeding in which the same state constitutional issue, one of first impression, is raised, this court established an expedited briefing and argument schedule in this case to decide defendants' motion to dismiss. *fn1"

 I. Summary of Trump's Claims

 Plaintiff alleges that the defendant, South Jersey Transportation Authority ("SJTA"), will fund the Westside Connector, in part, through the issuance of bonds "repayable from and collateralized by parking tax proceeds collected for use by the [Casino Reinvestment Development Authority ("CRDA")] from all casinos to be located on the H-Tract." Complaint P 48. In addition, plaintiff alleges that SJTA will issue bonds repayable from the "alternative investment tax obligations of all casinos located on the H-Tract." Id.

 Trump contends that the contemplated funding scheme for the SJTA bonds violates the New Jersey Constitution, specifically, article IV, section 7, paragraph 2, which governs casino gambling. *fn2" Plaintiff further alleges that CRDA and SJTA will not disclose this alleged constitutional infirmity to potential purchasers of the bonds. Therefore, plaintiff claims, in the first count of its complaint, that the issuance of the proposed bonds constitutes an impending violation of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Securities and Exchange Commission Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5. *fn3" Plaintiff seeks a permanent injunction barring the sale of these bonds, absent full disclosure of the alleged state constitutional infirmities of the proposed repayment plan.

 In the fourth count of its complaint, Trump alleges that defendants have not complied with the environmental assessment requirements of the Federal-Aid Highway Act ("FHA"), 23 U.S.C. § 109, and the regulations promulgated thereunder, 23 C.F.R. Part 771. Plaintiff's fifth count claims that the defendants have not met the requirements of the Clean Air Act. 42 U.S.C. § 7506. All federally funded highway projects must comply with the "Transportation Conformity" provisions of 50 C.F.R. Parts 51 and 93 which mandate general compliance with the Regional Transportation and Transportation Improvements Plans adopted pursuant to the Clean Air Act.

 On each of the second through fifth counts of the complaint, Trump seeks both a declaratory judgment that compliance with these federal statutes is required, and injunctive relief barring any development until such time as full compliance with these statutes is accomplished.

 Trump's final two claims are based on New Jersey law. The sixth count of the complaint alleges violations of the Coastal Area Facility Review Act ("CAFRA"). N.J. Stat. Ann. §§ 13:19-1 to 13:19-21 (West 1991 & Supp. 1997). The seventh and final count of the complaint alleges that the funding scheme for the development of the H-Tract and the construction of the Westside Connector violates the New Jersey Constitution. N.J. Const. art. IV, § 7, P 2. Trump seeks declaratory and injunctive relief under both of its state law causes of action. More specifically, under the final count of the complaint, Trump seeks a declaration that the funding mechanism planned for the SJTA bonds is barred by the New Jersey Constitution.

 Defendants have moved to dismiss the complaint for failure to state a claim upon which relief can be granted pursuant to Fed. R. Civ. P. 12(b)(6). Because Trump has not stated a claim for relief under any federal statute or regulation identified in its complaint, those claims will be dismissed. In the interest of comity, this court will decline to exercise supplemental jurisdiction over the plaintiff's state law causes of action. Accordingly, plaintiff's state law claims will be dismissed without prejudice.

 II. Standards Governing Dismissal Under Rule 12(b)(6).

 On a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6), this court must accept all well-pleaded allegations of the complaint as true, and construe those allegations in the light most favorable to the plaintiff. Gomez v. Toledo, 446 U.S. 635, 636 n.3, 64 L. Ed. 2d 572, 100 S. Ct. 1920 (1980); Piecknick v. Pennsylvania, 36 F.3d 1250, 1255 (3d Cir. 1994); Jordan v. Fox, Rothschild, O'Brien & Frankel, 20 F.3d 1250, 1261 (3d Cir. 1994). Nevertheless, a complaint should be dismissed if, accepting as true all of the facts alleged in the complaint, and drawing all reasonable inferences in the plaintiff's favor, no relief could be granted under any set of facts consistent with the allegations of the complaint. Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957). See also Gasoline Sales, Inc. v. Aero Oil Co., 39 F.3d 70, 71 (3d Cir. 1994); Markowitz v. Northeast Land Co., 906 F.2d 100, 103 (3d Cir. 1990).

 III. Discussion

 A. The "Purchaser-Seller" Requirement of Rule 10b-5

 Defendants contend that Trump's claim under § 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 must be dismissed for lack of standing. In order to bring an action for a violation of Rule 10b-5, a plaintiff ordinarily must be an actual purchaser or seller of the securities at issue. Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 44 L. Ed. 2d 539, 95 S. Ct. 1917 (1975) (adopting the rule of Birnbaum v. Newport Steel Corp., 193 F.2d 461 (2d Cir. 1952), in private damages actions under Rule 10b-5). Trump contends that the purchaser-seller rule is inapplicable in suits seeking purely injunctive relief.

 The several Circuit Courts of Appeals which have addressed this issue, like the parties before this court, disagree about whether the rule of Blue Chip Stamps applies to suits seeking only injunctive relief. Prior to the Supreme Court's decision in Blue Chip Stamps, the Third Circuit had carved out an exception to the Birnbaum purchaser-seller rule in an action seeking only injunctive relief. Kahan v. Rosenstiel, 424 F.2d 161 (3d Cir. 1970). In one post-Blue Chip Stamps case, the Third Circuit noted that "the 'purchaser-seller' rule of [Blue Chip Stamps ] would now preclude the Kahan suit." Sharp v. Coopers and Lybrand, 649 F.2d 175, 186 n.15 (3d Cir. 1981), overruled in part, on other grounds, In re Data Access Systems Securities Litigation, 843 F.2d 1537 (3d Cir. 1988) (in banc). In an earlier case, however, a different panel of the Third Circuit had assumed, without deciding, that a narrow exception to the Birnbaum purchaser-seller requirement might have survived Blue Chip Stamps, "where only injunctive relief is sought to prevent incipient 10b-5 violations." Tully v. Mott Supermarkets, Inc., 540 F.2d 187, 194 (3d Cir. 1976) (citing Thomas v. Duralite Co., 524 F.2d 577 (3d Cir. 1975)).

 The Fifth Circuit has also recognized an exception for purely injunctive actions. Davis v. Davis, 526 F.2d 1286, 1289 (5th Cir. 1976). However, Judge Bork, writing for a panel of the Court of Appeals for the District of Columbia Circuit, expressly extended the standing requirement of Blue Chip Stamps to suits seeking injunctive relief. Cowin v. Bresler, 239 U.S. App. D.C. 188, 741 F.2d 410 (D.C. Cir. 1984). It is not clear that the "narrow exception" discussed, but not applied in Tully, even if it survives Blue Chip Stamps, is applicable to the facts of this case. See Tully, 540 F.2d at 195.

 As one authority has observed, "most cases waiving the Birnbaum rule have involved shareholder plaintiffs." Jennifer J. Johnson, Predators Rights: Multiple Remedies for Wall Street Sharks Under the Securities Laws and Rico, 10 J. Corp. L. 3, 35 (1984). See, e.g., Granada Investments, Inc. v. DWG Corp., 717 F. Supp. 533, 536 (N.D. Ohio 1989) ("The policies embodied in the Exchange Act of eliminating deceptive and unfair practices in securities trading and protecting the public from inaccurate and misleading information are clearly advanced by permitting aggrieved shareholders to bring suits to enjoin wrongful acts."); Hundahl v. United Benefit Life Insurance Co., 465 F. Supp. 1349, 1359 (N.D. Tex. 1979) (permitting plaintiff class of minority shareholders to seek injunctive relief). *fn4"

 Trump alleges that, unless an injunction issues, the proposed sale of the SJTA bonds will lead to the construction of the Westside Connector. Complaint P 68. Construction of the highway and tunnel, Trump alleges, will cause harm to Trump, by adversely affecting the environment and local traffic patterns around the Trump hotels, all of which allegedly will result in injury to Trump's business. Complaint PP 51-60. Notably, Trump does not allege that it plans to purchase or sell any SJTA bonds, if they become available. The absence of an allegation of direct injury is fatal to Trump's claim for relief under § 10(b) and Rule 10b-5.

 The Supreme Court has recently noted that "the breadth of the zone of interests varies according to the provisions of law at issue, so that what comes within the zone of interests of a statute for purposes of obtaining judicial review of administrative action under the 'generous review provisions' of the APA may not do so for other purposes." Bennett, U.S. at , 117 S. Ct. at 1161 (citing Clarke v. Securities Industry Assoc., 479 U.S. 388, 400, n.16, 93 L. Ed. 2d 757, 107 S. Ct. 750). Conversely, the zone of interests analysis is not at all applicable when Congress expresses an intent to eliminate such prudential restrictions by including a broad citizen suit provision in the relevant statute. Id. at , 117 S. Ct. at 1162-63 (holding that the citizen suit provision of the Endangered Species Act, which provides that "any person" may bring suit, must be taken at "face value"). Furthermore, Congress only expressly "negates" the zone of interests test when it includes in a statute a citizen suit provision which broadly permits "any person" to bring suit. Id. at , 117 S. Ct. at 1162 ("Congress legislates against the background of our prudential standing doctrine, which applies unless it is expressly negated."). However, this court need not engage in an analysis of the breadth of the statutory language, as mandated by Bennett, because a private right of action under § 10(b) and Rule 10b-5 is entirely judge-made. Appropriately, in the absence of an express Congressional sanction of citizen suits, the federal courts have interpreted the Exchange Act in keeping with judicially imposed limitations on standing.

 The Birnbaum/Blue Chip Stamps "purchaser-seller" rule is itself derived from the same prudential concerns that animate the zone of interests test. See Landy v. FDIC, 486 F.2d 139, 158 (3d Cir. 1973) (noting that purchaser seller requirement is "consistent with generally applicable rules of standing."); Herpich v. Wallace, 430 F.2d 792, 805-06 (5th Cir. 1970) (holding that only purchasers or sellers can incur the injury proscribed by § 10(b) and Rule 10b-5). Clearly, were this court to suspend the purchaser-seller rule for suits seeking only injunctive relief, as plaintiff argues that it should, these prudential concerns would not disappear. Even if plaintiff is correct that the purchaser-seller requirement is inapplicable in an action seeking only injunctive relief, Trump must still satisfy the requirement that its alleged injury fall within the zone of interests sought to be protected by section 10(b) and Rule 10b-5.

 In enacting § 10(b), Congress intended "to give the investing public the opportunity to make knowing, intelligent decisions regarding the purchase or sale of securities." Kahan, 424 F.2d at 173. The court in Kahan, allowed a minority shareholder to sue to enjoin allegedly "deceptive practices which if continued would lead to completed purchases or sales that give rise to a cause of action under § 10(b)." Id. The fact that the shareholder plaintiff in Kahan alleged that, absent an injunction, he would be the victim of a securities fraud, is a critical factor in analyzing standing to sue under Rule 10b-5.

 In Initio, Inc. v. Hesse, 474 F. Supp. 312 (D. Del. 1979), a shareholder brought a derivative action, partly under Rule 10b-5, seeking to enjoin an impending stock sale. The court distinguished Kahan, noting that Initio did not allege that it was about to "suffer a direct injury as a result of [the alleged] misrepresentations." Id. at 321. Rather, Initio alleged that the company was about to perpetrate a securities fraud, and that it might be injured through a decline in the stock price, if lawsuits were brought against the company. Id. In the same manner, Trump here asserts that the general public will be defrauded unless an injunction issues. The injury alleged in this case, however, involves harm to the environment and to Trump's businesses arising from the proposed construction of the Westside Connector and the development of the H-Tract. Trump's "harm" is even more remote than that of Initio, because unlike a lawsuit based on fraud, it does not even arise "secondarily" from the fraud itself, but instead, arises from the intervening act of construction of the highway and tunnel, construction which it is alleged will be facilitated by the sale of the bonds.

 The Fourth Circuit came to a similar conclusion when faced with a request for an injunction based upon an alleged impending violation of Rule 10b-5. Advanced Resources Int'l v. Tri-Star Petroleum, 4 F.3d 327 (4th Cir. 1993). Advanced Resources, a consulting firm, sought to prevent the defendant from "distributing or otherwise misusing a report" which it had written concerning recovery of methane gas from certain geologic formations. Id. at 329. Advanced Resources urged the court to limit the Blue Chip Stamps/Birnbaum rule to cases seeking damages and to "adopt a looser version of the rule for injunctive cases." Id. at 332. The court in Advanced Resources noted the split in the circuits regarding whether Blue Chip Stamps would bar suits for injunctive relief not brought by a purchaser-seller, but elected not to decide whether to endorse such an exception on the facts then before the court. Id.

 Without specifically mentioning the zone of interests test, the court in Advanced Resources ruled that the plaintiff did not fall within the class of persons protected by § 10(b) and Rule 10b-5. After reviewing cases which had allowed an exception to the purchaser-seller rule, the Fourth Circuit explained that:

 
Any exception to the Blue Chip purchaser/seller standing requirements must . . . be limited to three groups of plaintiffs: 1) U.S. Attorneys or the SEC; 2) shareholder plaintiffs who claim that, without injunctive relief to stop the defendants' deceptive and unfair practices, they may in the future suffer monetary loss to their shares; or 3) plaintiffs who can show that, but for the deceptive practices, they would have bought or sold the securities at issue. In the instant case, however, [Advanced Resources] is most certainly not the government. Moreover, [Advanced Resources] can show no financial interest in the securities being offered, and thus cannot show that Tri-Star's misrepresentations to potential . . . investors will threaten the valuation of its own holdings. Finally, [Advanced Resources] is not a potential purchaser or seller of securities, as it does not ...

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