The opinion of the court was delivered by: BRODERICK
This action was commenced by plaintiff in the United States District Court for the Northern District of Alabama, Southern Division. Pursuant to 28 U.S.C. § 1404(a), the case was transferred to the Southern District of New York.
After transfer plaintiff filed a motion seeking authorization for the action to be maintained as a class action. That motion was opposed, and cross-motions were filed to dismiss the complaint on the ground that it failed to state a claim upon which relief could be granted. Plaintiff then moved for leave to file an amended and supplemental complaint, and defendants, asserting that the new proposed complaint also failed to state a claim upon which relief could be granted, opposed plaintiff's motion.
On September 28, 1976, this Court per MacMahon, J. filed a Memorandum Opinion granting leave to amend the complaint. That order rendered moot defendants' motion to dismiss and plaintiff's motion for class action determination since both motions had been addressed to the earlier pleading.
Plaintiff has now served and filed her Amended and Supplemental Complaint (hereinafter the "complaint"), and she has moved for class action certification pursuant to Rule 23(c), Fed.R.Civ.P. Plaintiff has defined the relevant class as "all persons other than defendants named herein who were beneficial owners of Geon stock at that time on February 22, 1974 when trading on the American Stock Exchange was suspended and who were record owners of Geon stock as of the close of business on June 14, 1974." Complaint P 15. Various of the defendants have filed cross-motions to dismiss the complaint for failure to state a claim upon which relief can be granted.
For the reasons set forth below, defendants' motions to dismiss the complaint are granted as to so much of the complaint as alleges individual claims by plaintiff and, except as to the Section 16(b) claim against defendant James McMahon, See pp. 82-83 Infra, as to so much of the complaint as alleges derivative claims on behalf of defendant Geon Industries, Inc. As to so much of the complaint as alleges claims on behalf of the class proposed by plaintiff, defendants' motions to dismiss are denied without prejudice. Action on plaintiff's motion for class action certification is suspended pending submission by the parties of further memoranda on that motion. Such memoranda are to be prepared in light of the dispositions announced in this order.
For purposes of the motion to dismiss, the facts alleged in the complaint will be taken as undisputed. The facts are set forth, in substance, below. They relate to the proposed acquisition of the assets of Geon Industries, Inc. ("Geon") by Burmah Oil Co., Ltd. ("Burmah").
Plaintiff Susan W. Rediker presently owns 100 shares of Geon common stock, having purchased 200 shares on July 23, 1973 and having sold 100 of those shares on February 20, 1975. Plaintiff brings this action in the purported dual capacity of class representative seeking damages from Geon and the other defendants, and derivative plaintiff seeking relief on behalf of Geon. She purports to represent a class consisting of all persons, other than the defendants, who owned Geon stock on February 22, 1974 when trading on the AMEX was suspended and who were owners of Geon stock on June 14, 1974.
Defendant Geon is a New York corporation whose stock is registered on the American Stock Exchange ("AMEX") pursuant to § 12(b) of the Securities Exchange Act of 1934 ("Exchange Act").
Defendant George O. Neuwirth, the founder of Geon, is its chief executive officer and chairman of its board of directors. He owns or is voting trustee with respect to approximately 581,000 shares of Geon common stock, which constitutes some 29 per cent of the total common stock outstanding. Defendant Frank Bloom is the secretary-treasurer and financial vice-president of Geon. Defendant McMahon was during times pertinent to this litigation the comptroller of Geon Intercontinental, Inc. ("Intercontinental"), a wholly owned subsidiary of Geon. McMahon had overall responsibility for the accounting department of Intercontinental and helped Bloom in the preparation of Geon's financial statements and reports. Defendant Roy Alpert is a close friend of defendant Neuwirth. Defendant Irving Alpert is a brother of Roy Alpert and is a partner of his brother in a real estate business. Defendant Edwards & Hanly is a broker-dealer in securities and a member of AMEX. Defendant Marvin Rauch was during times pertinent to this litigation a registered representative employed by Edwards & Hanly. Defendant Arthur Andersen & Company is a national accounting firm which provided all outside accounting services for Geon.
In the summer of 1973, Geon commenced discussions with Burmah concerning the possible merger of the two companies. During September, October and November of 1973, defendant Neuwirth tipped defendants Rauch and Roy Alpert, and apparently tipped others, as to the ongoing Geon-Burmah discussions. Shortly thereafter all of the individual defendants were engaged in widespread tipping of friends and relatives. With the exception of Neuwirth and Bloom, all of the individual defendants, along with the tippees' friends and relatives, purchased Geon stock on the basis of their knowing of the brewing Geon-Burmah deal, which constituted knowledge of non-public inside information.
Public disclosure concerning the preliminary discussions between Geon and Burmah was not made until December, 1973. On December 21, 1973, Geon announced that it had reached a written agreement in principle with Burmah whereby Geon was to be acquired by Burmah for $ 36,000,000, or approximately $ 16.80 per share. Even after the fact of the prospective acquisition of Geon by Burmah had been made public, non-public inside information concerning the details of the ...