TRUMP HOTELS & CASINO RESORTS, INC., Appellant, v. MIRAGE RESORTS INCORPORATED; The State of New Jersey; The New Jersey Department of Transportation; The South Jersey Transportation Authority; The Casino Reinvestment Development Authority; The New Jersey Transportation Trust Fund Authority; John J. Haley, Jr., in his capacity as Acting Commissioner of the New Jersey Department of Transportation; James A. Crawford, in his capacity as Executive Director of the South Jersey Transportation Authority; James B. Kennedy, in his capacity as Executive Director of the Casino Reinvestment Development Authority; Steven Hansen, in his capacity as Executive Director of the New Jersey Transportation Trust Fund Authority.
No. 97-5281
United States Court of Appeals, Third Circuit
Argued Feb. 11, 1998. Decided April 2, 1998.
140 F.3d 478
This anomaly is particularly troubling and augments the primary reason why we reverse the district court‘s denial of the trustee‘s motion. We reverse the district court because it utilized a faulty premise in reaching its conclusion. It applied the incorrect legal standard and thus strayed beyond an appropriate exercise of discretion by disqualifying the Firm under
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In sum, we have jurisdiction under
The district court exceeded permissible bounds of discretion, however, when it applied an inappropriate legal precept to deny Gibbons‘s motion for an order authorizing employment of the Firm as trustee‘s counsel. The Firm does not have an actual or potential conflict of interest and may not be disqualified under
Peter Verniero, Jeffrey J. Miller, Office of Atty. Gen. of New Jersey, Division of Law, Trenton, NJ, for Appellees, The State of New Jersey, New Jersey Department of Transp., The New Jersey Transp. Trust Fund Authority, John H. Haley, Jr., and Steven Hansen.
Guy P. Ryan, Gilmore & Monahan, Toms River, NJ for Appellees, The South Jersey Transportation Authority and James A. Crawford.
Kevin J. Coakley (Argued), Marc D. Haefner (On Brief), Connell, Foley & Geiser LLP, Roseland, NJ, Michael R. Cole, Riker, Dan-
Before: GREENBERG, NYGAARD and McKEE, Circuit Judges.
OPINION OF THE COURT
McKEE, Circuit Judge:
Trump Hotels & Casino Resorts, Inc., appeals from the district court‘s Rule 12(b)(6) dismissal of this action which Trump brought under Section 10(b) of the Securities Exchange Act of 1934,
I.
Mirage Resorts, Inc., and Trump Hotels and Casino Resorts, Inc. own competing casinos in Atlantic City, New Jersey. Although Trump brought this action under the securities laws, the seeds of this dispute were sown when a real estate development was planned in Atlantic City. Although our inquiry does not need to address the details of the planned development, a brief discussion of it is necessary to place the dispute in context.
The action arises from a dispute involving the redevelopment of a parcel of land known as the Huron North Redevelopment Area (“H-Tract“). The H-Tract is located in the Marina District of Atlantic City and is comprised of approximately 178 acres, 150 of which are owned by Atlantic City. The tract consists of wetlands that were used as a municipal landfill until the 1960‘s. Trump claims that the H-Tract is highly contaminated with hazardous substances and is vacant except for a few municipally maintained facilities.
In November of 1994, the City Council of Atlantic City authorized the City Planning
Shortly before the execution of the Memorandum of Understanding between Mirage and the City, the Atlantic City delegation to the New Jersey State Legislature introduced legislation known as the Municipal Landfill Site Remediation & Redevelopment Act,
The Redevelopment Agreement conditioned Mirage‘s obligations to develop the H-Tract upon a number of contingencies. The most significant contingency for purposes of this dispute was the approval and funding by the State of New Jersey of a roadway called the “Westside Connector.” The plans for the Westside Connector include the construction of a 2.2 mile long highway connecting the Atlantic City Expressway to Brigantine Boulevard, and a 2,000 foot long tunnel. Trump claims that construction of the tunnel portion of the Westside Connector requires the acquisition and destruction of nine private homes and more than 200 units of federally-assisted low income housing, 47 of which are currently occupied. Trump also claims that the Westside Connector will provide direct access to the H-Tract, that its primary purpose is to facilitate the development of the H-Tract by Mirage, and that Mirage will not proceed with the development of the H-Tract in the absence of the Westside Connector.
On September 17, 1996, the New Jersey Department of Transportation (“DOT“) and Mirage entered into a Memorandum of Understanding regarding the design and construction of the Westside Connector. The Memorandum of Understanding was followed by the execution of a Road Development Agreement between Mirage, the State of New Jersey, acting through the DOT, and the South Jersey Transportation Authority (“SJTA“).
The Road Development Agreement reflects a commitment by the parties to move forward with the proposed Westside Connector, and it defines the respective obligations of the parties regarding the proposed construction and details various conditions to the closing of the Road Agreement. It also sets forth the funding sources for the project, which include $65 million in proceeds from bonds issued through the South Jersey Transportation Authority (“SJTA“) repayable from, and collateralized by, parking and investment funds collected for use by the Casino Reinvestment Development Authority (“CRDA“) and $55 million in the proceeds of bonds issued through the SJTA repayable from, and collateralized by, alternative investment tax obligations of all casinos that will be located on the H-Tract.
Trump currently owns three of the thirteen casinos in Atlantic City. One of Trump‘s casinos, “Trump‘s Castle,” is located in the Marina District near the H-Tract. Trump claims that it will be adversely affected by the construction of the Westside Connector and the development of the H-Tract in a
On March 14, 1997, Trump filed a complaint against Mirage, the State of New Jersey, the New Jersey DOT, the SJTA, the CRDA and the New Jersey Transportation Trust Fund in the United States District Court for the District of New Jersey. Trump sought declaratory and injunctive relief which would effectively bar the construction of the Westside Connector and the development of the H-Tract by halting the sale of the bonds that are a necessary component of the funding scheme. Trump alleged that the funding scheme for the planned construction of the Westside Connector and the development of the H-Tract would violate numerous statutes,2 state law3 and the New Jersey Constitution. However, we are only concerned with Trump‘s allegations that the funding mechanism violates the Securities and Exchange Act of 1934,
The defendants initially moved to dismiss Trump‘s complaint under
On May 1, 1997, the district court dismissed all of the federal claims under
II.
Our standard of review of a dismissal under
III.
Trump argues that the use of bonds issued by the SJTA as a part of the funding mechanism violates
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange ...
(b) To use or employ, in connection with the purchase or sale of any security, ... any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe ... in the public interest or for the protection of investors.
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.
A.
“In essence the question of standing is whether the litigant is entitled to have the court decide the merits of the dispute or of particular issues.” Warth v. Seldin, 422 U.S. 490, 498 (1975). Standing “subsumes a blend of constitutional requirements and prudential considerations.” Valley Forge Christian College v. Americans United for Separation of Church and State, Inc., 454 U.S. 464, 471 (1982). Obviously, satisfying the Article III “case or controversy” requirement is the “irreducible constitutional minimum” of standing.” Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992). Article III constitutional standing contains three elements: (1) the plaintiff must have suffered an injury in fact — an invasion of a legally protected interest which is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical;
“In addition to the ‘immutable requirements of Article III,’ the federal judiciary has also adhered to a set of prudential principles that bear on the question of standing.” Bennett v. Spear, 520 U.S. 154, 162 (1997) (citation omitted). They are: (1) “the plaintiff generally must assert his own legal rights and interests, and cannot rest his claim to relief on the legal rights or interests of third parties,” Valley Forge Christian College, 454 U.S. at 474; (2) “even when the plaintiff has alleged redressable injury sufficient to meet the requirements of Article III, the federal courts will not adjudicate abstract questions of wide public significance which amount to generalized grievances pervasively shared and most appropriately addressed in the representative branches,” Id. at 474-75; and (3) “the plaintiff‘s complaint must fall within the zone of interests to be protected or regulated by the statute or constitutional guarantee in question.” Id. (citation and internal quotations omitted).
It is this latter “zone of interests” consideration which is of paramount concern here. Although the “zone of interests” consideration had its origin in the context of judicial review proceedings under the Administrative Procedures Act (“APA“), see Association of Data Processing Service Organizations, Inc. v. Camp, 397 U.S. 150 (1970), it is now clear that it applies “in suits not involving review of federal administrative action,” and it is one “among other prudential standing requirements of general application.” Bennett v. Spear, 520 U.S. at 163.
B.
It is by no means certain that Trump has alleged sufficient injury to achieve Article III standing here. However, even if the allegations of fraud in the issuance of securities that Trump does not intend to purchase are sufficient for purposes of Article III, they clearly fall outside the zone of interests protected by the SJTA, section 10(b) of the Securities Act, and Rule 10b-5.
The Supreme Court has held that only a purchaser or seller of a security has standing to bring a private 10b-5 securities fraud action for money damages. Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975). However, Trump is not bringing a private damages action under 10b-5. Rather, Trump seeks injunctive relief against what it claims is an impending 10b-5 violation, and it claims standing based on a pre-Blue Chip Stamps decision of this court, Kahan v. Rosenstiel, 424 F.2d 161 (3d Cir. 1970). In Kahan, we carved out a narrow exception to the “Birnbaum rule” and held that the non-purchasing or non-selling plaintiff of a security has standing to request injunctive relief for a 10b-5 violation.
The Birnbaum rule takes its name from Birnbaum v. Newport Steel Corp., 193 F.2d 461 (2d Cir. 1952), which was decided twenty-three years before the Supreme Court‘s Blue Chip Stamps decision. In Birnbaum the court examined the legislative history of securities legislation and concluded that Rule 10b-5 “extended protection only to the defrauded purchaser or seller” of the security at issue. Id. at 464. Thus was born the Birnbaum purchaser/seller rule. In Blue Chip Stamps, the Supreme Court expressly declared that “Birnbaum was rightly decided.” 421 U.S. at 731.
Kahan was decided eighteen years after Birnbaum, but five years before Blue Chip Stamps. In Kahan we reviewed then existing precedent in the Second Circuit and concluded that, despite the Birnbaum rule, Second Circuit jurisprudence allowed a non-purchasing or non-selling plaintiff to bring an action for injunctive relief under 10b-5. We stated “[t]he purchase-sale requirement
[n]either the language of § 10(b) and Rule 10 b-5 nor the policy they were designed to effectuate mandate adherence to a strict purchaser-seller requirement so as to preclude suits for [injunctive] relief if a plaintiff can establish a causal connection between the violations alleged and the plaintiff‘s loss.
Trump argues that this “relaxed standing” rule of Kahan survived Blue Chip Stamps. Mirage argues to the contrary citing Cowin v. Bresler, 741 F.2d 410 (D.C. Cir. 1984) to support its position that Blue Chip Stamps sounded the death knell for the “relaxed standing” rule. In Cowin, the court held that the Blue Chip Stamps purchaser-seller limitation applies with equal force to equitable actions.
We have not, heretofore, squarely addressed this issue. In Tully v. Mott Supermarkets, Inc., 540 F.2d 187 (3d Cir. 1976), a panel of this court assumed that the “relaxed standing” rule of Kahan survived Blue Chip Stamps, but held that the case before it did not fit into that rule. 540 F.2d at 194. In Sharp v. Coopers & 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) (en banc), we wrote that Blue Chip Stamps precludes a non-purchaser or non-seller from seeking injunctive relief for an impending 10b-5 violation. However, that reference is clearly dicta, and not part of the holding. 649 F.2d at 187 n. 15.
Thus, we have yet to decide whether a non-purchasing or non-selling plaintiff continues to have standing to seek injunctive relief for an alleged 10b-5 violation after Blue Chip Stamps. However, resolution of that question must await yet another day as we need not now decide it to resolve the case at bar. Whether or not the relaxed standing rule survives Blue Chip Stamps, the injuries that Trump alleges here are not within the zone of protection established by
Trump has no intention of purchasing the bonds, and, therefore, is not a member of the universe of potential investors.8 Consequently, it cannot demonstrate that it would suffer an injury sufficiently connected to the securities fraud it alleges.9 Trump argues, in part, that it must be allowed to bring this action because of the unique circumstances surrounding an offering of government bonds. At oral argument Trump suggested that its role in enjoining this sale of securities with-
The Act was designed to eliminate deceptive and unfair practices in security trading and to protect the public from inaccurate, incomplete and misleading information. The thrust of the Act and the decisions interpreting it is to give the investing public the opportunity to make knowing and intelligent decisions regarding the purchase and sale of securities.
Kahan, at 173 (emphasis added).
Aside from nebulous allegations of environmental harm and harm to the Atlantic City community, Trump‘s essential complaint is that the proceeds from the sale of the bonds will be used to build a highway and tunnel which will funnel traffic from the Atlantic City Expressway to the multi-casino complex Trump‘s competitor will build on the H-Tract. The highway and tunnel, once completed, will be a boon for Mirage and Trump fears economic loss. Admittedly, there is a highly attenuated connection between the funding scheme and Trump‘s claimed “injury“. However, that “injury” is much too tenuous to be regarded as arising from the alleged securities fraud. The injury results from the highway that will bring traffic to Trump‘s competitor. Trump‘s assertion that the injuries are within the zone of interests protected by
IV.
Two small matters remain. First, Trump claims that the district court abused its discretion by “failing to provide Trump with an opportunity to supply further particularized allegations of fact to support its standing.” Appellant‘s Br. at 47. However, Trump never requested leave of the district court to amend or supplement its complaint. Therefore, it cannot raise that issue on appeal. Mann v. Conlin, 22 F.3d 100, 103 (6th Cir. 1994) (where plaintiff never requested leave to amend in the district court, that argument is not properly before appellate court).
Second, as noted above, Trump has appealed from the district court‘s decision to refrain from exercising supplemental jurisdiction over its state law claim that the proposed funding scheme violates the New Jersey Constitution. However, supplemental jurisdiction is exercised as a matter of discretion. See Borough of West Mifflin v. Lancaster, 45 F.3d 780, 788 (3d Cir. 1995). A court may decline to exercise supplemental jurisdiction over a state law claim where “the claim raises a novel or complex issue of state law.”
V.
For the above reasons, the judgment of the district court will be affirmed.
Notes
On November 2, 1976, New Jersey voters approved an amendment to the New Jersey Constitution which permitted the Legislature to authorize the establishment and operation of gambling casinos in Atlantic City. However, the amendment required that any such legislation shall provide for the State revenues derived therefrom to be applied solely for the purpose of providing funding for reductions in property taxes, rental, telephone, gas, electric, and municipal utilities charges of, eligible senior citizens and disabled residents of the State, and for additional or expanded health services or benefits or transportation services or benefits to eligible senior citizens and disabled residents, in accordance with such formulae as the Legislature shall by law provide.
In 1984, the Casino Reinvestment Act of 1984 was enacted to spur investment. State of New Jersey and the Casino Reinvestment Development Authority, at 6. The Act created the Casino Reinvestment Development Authority (“CRDA“) to accelerate development and to provide a focus for reinvestment by the casinos.