The opinion of the court was delivered by: TENNEY
Certain of the named defendants (being the only defendants served herein) move, pursuant to Rule 12(b) (6) of the Federal Rules of Civil Procedure for dismissal of the second amended complaint for failure to state a claim upon which relief can be granted.
Plaintiff, a stockholder of defendant Virginia Iron, Coal & Coke Company (hereinafter referred to as "Virginia Iron"), whose stock is traded on the American Stock Exchange, purports to bring this action individually and as a representative of all of the stockholders of Virginia Iron, claiming a violation by all of the defendants of Section 10(b) of the Securities Exchange Act of 1934 (15 U.S.C. § 78j(b) (1958), and Rule 10b-5 promulgated pursuant thereto (17 C.F.R. § 240.10b-5).
Jurisdiction of this Court is invoked by plaintiff solely under Section 27 of the Securities Exchange Act (15 U.S.C. § 78aa).
Paragraph 2 of the Complaint states that all of the individual defendants were directors of Virginia Iron, and Paragraph 3 recites that all of the defendants violated Section 10(b) and Rule 10b-5 "by the use of means and instruments of transportation and communication in interstate commerce, and by the use of the mails" and that
"they employed manipulative and fraudulent devices, schemes and artifices to defraud the plaintiff and persons similarly situated by engaging in transactions, practices and courses of business which operated as a fraud and deceit on plaintiff and persons similarly situated as holders of the Corporation's common stock."
Paragraph 4 refers to defendant Premier Investing Corporation as being wholly owned and controlled by defendant Weininger.
In Paragraph 5, the plaintiff avers:
"Prior to December 19, 1961 plaintiff bought and sold 100 shares of the Corporation's common stock and received 11 shares thereof as stock dividends. On December 19, 1961 plaintiff sold 10 shares of the Corporation's common stock, leaving her with one share thereof. Thereafter the plaintiff bought 200 shares of the Corporation's common stock on August 27, 1962, sold 100 shares on January 22, 1963 and 100 shares on April 30, 1963, and bought 25 shares on April 18, 1964. At the time of the commencement of this lawsuit plaintiff was the owner of 26 shares of the Corporation's common stock."
Paragraph 6 states that during the period from approximately January 1 through November 8, 1963, inclusive, the Board of Directors of Virginia Iron (most of whom are defendants) was faced with a choice between a proposal of Pacific Seaboard Land Company (hereinafter referred to as "Pacific"), and a proposal of the defendant Bates Manufacturing Company (hereinafter referred to as "Bates").
Paragraphs 7 and 8 outline both the Pacific and Bates proposals, and in Paragraph 9 the plaintiff avers that the defendant directors of Virginia Iron on or about November 18, 1963, accepted the Bates proposal, rejecting the Pacific proposal, which acceptance resulted in a sale by certain of the defendant directors to Bates of the common stock of Virginia Iron owned by them at a price of $12 per share and their resignation as directors in favor of nominees of Bates.
In Paragraph 10, the plaintiff states that the sale price of $12 per share was $2 above the market, "the premium being paid by Bates to the said defendant directors to obtain control of Virginia Iron. "
Plaintiff, in Paragraph 11, avers that both Virginia Iron and its stockholders "would have been better off if the Pacific proposal had been accepted instead of the Bates proposal" and that the judgment of the defendant directors in accepting the Bates proposal and rejecting the Pacific proposal "was not an honest exercise of their discretion and business judgment * * * but was dictated by wholly selfish considerations in direct violation of their fiduciary duties" to Virginia Iron and its stockholders, thereby depriving Virginia Iron "of the possibility of a valuable acquisition and depriving the stockholders of the opportunity to sell 20% of their shares at $13.75 or $3.75 above the market * * *."
Paragraph 12 states that by accepting the Bates proposal rather than the Pacific proposal "only certain defendant directors derived any benefit, i.e., the sale of all their shares at $12 per share, with no ...