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In re Donald J. Trump Casino Sec. Litig. - 7 F.3d 357 (3d Cir. 1993)


The "bespeaks caution" doctrine allows dismissal of securities fraud claims under Fed. R. Civ. P. 12(b)(6) because cautionary language in the offering document negates the materiality of an alleged misrepresentation or omission.


Plaintiff investors filed an action against defendant developers and accountant for violations of the federal securities laws and state law for fraud, misleading statements, and omissions in a prospectus for the issuance of bonds. The district court dismissed the securities claims, holding that sufficient cautionary statements were included in the prospectus. The linchpin of the district court’s decision was what has been described as the “bespeaks caution” doctrine, according to which a court may determine that the inclusion of sufficient cautionary statements in a prospectus renders misrepresentations and omissions contained therein nonactionable. The investors appealed.


Did the “bespeaks caution” doctrine apply?




On appeal, the United States Court of Appeals for the Third Circuit affirmed, holding that the district court had authority pursuant to the Judicial Panel on Multidistrict Litigation, 28 U.S.C. S. § 1407, to issue dispositive orders. The doctrine of "bespeaks caution" allowed dismissal as a matter of law because the prospectus contained abundant and meaningful cautionary language that negated any material misrepresentations. Nor did the prospectus omit facts that were material. The prospectus went to great lengths to alert plaintiffs, as reasonable investors, to specific risks and the magnitude of the project. The securities laws did not create liability for breaches of fiduciary duty or mismanagement.

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