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November 25, 1986


The opinion of the court was delivered by: KEENAN


JOHN F. KEENAN, United States District Judge:


 This securities fraud class action arises out of the worst industrial accident in history, the gas leak at Union Carbide India Limited's (hereinafter referred to as "UCIL") plant in Bhopal, India. During the night of December 2-3, 1984, a leak of methyl isocyanate (MIC), a toxic chemical used in the production of pesticides, resulted in the death of at least 2,100 people with over 200,000 injured. *fn1" Ten days later, the first securities fraud class action complaint was filed in this matter. On May 24, 1985, the plaintiffs filed a consolidated class action complaint alleging violations of sections 11 and 12(2) of the Securities Act of 1933, 15 U.S.C. §§ 77k, 1 (1982), section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) (1982) and Rule 10b-5 promulgated by the Securities and Exchange Commission under section 10(b). In addition, the plaintiffs raise a state law negligent misrepresentation claim.

 Plaintiff Paul A. Chesir owns shares of Union Carbide Corporation as custodian for his son and reinvested dividends in Union Carbide's Dividend Reinvestment and Stock Purchase Plans (hereinafter referred to as the "Dividend Reinvestment Program"). This reinvestment program was offered through prospectuses and registration statements published during the class period. Plaintiffs Marcia Sims and Helen Von Borstel purchased and acquired shares of Union Carbide common stock in August, 1984. These individuals sue on behalf of all those who purchased Union Carbide common stock from approximately December 13, 1981 to December 3, 1984 either in the open market, or through the Dividend Reinvestment Program, and held their shares until at least December 4, 1984. Plaintiffs have sued Union Carbide Corporation, which owns 50.9% of UCIL, Union Carbide's Chairman and Chief Executive Officer, Warren M. Anderson and its President, Alec Flamm. In addition, the plaintiffs have named as defendants the members of Union Carbide's board of directors. *fn2" Presently before the Court is the defendants' motion to dismiss the complaint or, in the alternative, to grant summary judgment.


 MIC is a potentially deadly chemical used in the production of pesticides. Death or serious injury can result from exposure to even small amounts; skin contact causes severe burns. Liquid MIC can quickly vaporize when in contact with acidic materials, alkalies, amines and water. However, exposure of MIC to these contaminants can be limited through stringent safety and quality control protections.

 The Bhopal plant was operating since 1977 and produced roughly 2,000 tons of pesticide per year. MIC is produced and stored in large vertical tanks. The complaint alleges that critical policy decisions were made or cleared with the management of Union Carbide in the United States. In addition, Union Carbide received periodic safety reports from UCIL.

 Union Carbide's 1982 "Operational Safety Survey" reported the results of an on-site safety audit inspection of the Bhopal plant. The complaint alleges that the survey described safety deficiencies at the Bhopal plant. *fn3" The survey noted the shortcomings of maintenance personnel and the plant's failure to meet either American safety standards or those in place at Union Carbide's MIC plant at Institute, West Virginia. According to the complaint, the report concluded that the Bhopal plant represented, "'a higher potential for a serious accident or more serious consequences if an accident should occur.'"

 After describing the tragedy of December 2-3, 1984 and alleging theories as to its causes, the complaint asserts that Union Carbide made fifteen material omissions from the Dividend Reinvestment Prospectuses, Registration Statements, Annual Reports and Quarterly Reports issued during the class period. These alleged material omissions, which are set forth below, lay at the heart of the federal securities claim:

 (i) The fact that Union Carbide manufactured and stored huge quantities of MIC, an extremely volatile and flamable chemical compound, that is one of the most toxic substances in the world and ultra-hazardous by any means of contact, the exposure to which can cause serious injury or death;

 (ii) The fact that MIC was manufactured and stored in huge quantities at its subsidiary's Bhopal plant and its Institute, West Virginia plant;

 (iii) The fact that the Bhopal and a Institute, West Virginia plants, are located in populated areas;

 (iv) The fact that release or venting of MIC into the atmosphere around Union Carbide's plants could be catastrophic because the population living near them would ...

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