indirectly in one of the transactions complained of.
Accepting the well-pleaded allegations of the complaint as
true, Dopp v. American Electronic Laboratories, Inc., 55 F.R.D.
151, 153 (S.D.N.Y. 1972) (Weinfeld, J.), these additional
assertions are sufficient under Delaware law to raise a
reasonable doubt that a majority of the directors were
"interested." Aronson v. Lewis, 473 A.2d 805, 814 (Del.Supr.
1984). Plaintiff's failure to make a demand upon the Tyco board
is therefore excused on grounds of futility and he may proceed
with his derivative claim.
Plaintiff is correct in his assertion that a defendant need
not be a director or officer in order to owe a fiduciary duty
to a corporation and its shareholders. Such a duty may arise
from the exercise of control with respect to that corporation.
Harriman v. E.I. DuPont De Nemours & Co., 372 F. Supp. 101,
105-06 (D.Del. 1974) (interpreting Delaware law). However,
"[i]t is only when a person affirmatively undertakes to dictate
the destiny of the corporation that he assumes such a fiduciary
duty." Id. at 106 (emphasis in original) (citations omitted).
Regarding Benson Selzer, plaintiff relies upon that
defendant's purported role as a "control person" of Tyco.
Plaintiff's Memorandum of Law in Opposition to Defendants'
Motion to Dismiss the Second Amended Complaint at 48. This
characterization has been rejected by the court as
unsubstantiated by the facts alleged in the complaint and, for
the same reasons, plaintiff has failed to establish a fiduciary
duty on the part of Benson Selzer.
Inexplicably, plaintiff fails to direct the court to any
allegation in the complaint which tends to establish the
existence of a fiduciary duty of defendant Pearce to Tyco, and
none is evident to the court. Similarly, the purported role of
defendant Geoffrey Selzer in the challenged transactions,
Second Amended Complaint ¶¶ 55-60, is also insufficient to
establish the degree of control necessary to create a fiduciary
duty. As defendants point out, Geoffrey Selzer is not alleged
to have exercised any control over Tyco before occupying a
directorship several months after the class period.
For the reasons stated above, plaintiff's derivative action
is dismissed with prejudice as to defendants Pearce, Benson
Selzer, and Geoffrey Selzer.
The requirements for certification of a class action under
Rule 23(a), F.R.Civ.P., are numerosity, commonality, typicality
and adequacy of representation.*fn7 Plaintiff in this case
must also meet the dictates of Rule 23(b)(3), F.R.Civ.P., which
requires that common questions of law or fact predominate over
those affecting only individual members, and that a class
action is the superior method of adjudicating the controversy.
Defendants do not dispute that plaintiff has satisfied the
Rule 23(a) numerosity and commonality requirements and both of
the Rule 23(b)(3) requirements, and the court agrees that these
are met. Instead, defendants challenge plaintiff's motion on
grounds of typicality and adequacy of representation.
The court may not look to the merits of plaintiff's claim in
determining whether class certification is appropriate.
Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 177-78, 94 S.Ct.
2140, 2152-53, 40 L.Ed.2d 732 (1974). However, a
pre-certification inquiry "addressed not to the merits of
plaintiff's individual claim, but to whether he is asserting a
claim which, assuming
its merit, will satisfy the requirements of Rule 23, has never
been regarded as violative of the rule stated in Eisen. . . ."
Sirota v. Solitron Devices, Inc., 673 F.2d 566, 571 (2nd Cir.
1982) (quoting Doctor v. Seaboard Coast Line Railroad Co.,
540 F.2d 699, 707 (4th Cir. 1976) (emphasis in original) (footnote
omitted)). If, under the facts alleged in the complaint,
defendants' purportedly fraudulent omissions and misstatements
did not occur until after the dates of plaintiff's stock
purchases, then plaintiff could not have relied on the alleged
non-disclosure and his claim cannot be typical of those who
did. The typicality of plaintiff's claim is therefore closely
related to the class period, if any, that is appropriate.
As discussed above, the allegations upon which plaintiff's
securities fraud claim are predicated chiefly concern
defendants' failure to disclose material facts regarding the
Tyco Loan in a press release and subsequent quarterly reports.
See also, Brickman v. Tyco Toys, Inc., 722 F. Supp. at 1060;
Second Amended Complaint ¶ 83. The first allegedly misleading
statement, the press release, was disseminated on April 23,
1987, one day after the Tyco Loan. Plaintiff's Memorandum of
Law in Opposition to Defendants' Motion to Dismiss the Second
Amended Verified Complaint at 18-19. Plaintiff avers that
defendants disclosed the pertinent information regarding the
Tyco Loan and other challenged transactions in its 1987 Annual
Report to Shareholders which reached the investing public by
the first week of May, 1988. Second Amended Complaint ¶ 61.
Assuming the facts alleged in the complaint, investors who
purchased Tyco stock between the dissemination of the press
release and the disclosure of the challenged transactions
relied upon the misstatements and therefore constitute the
proper class for this action. The appropriate interval for the
putative class period is therefore between April 23, 1987 and
May 7, 1988.
Plaintiff's purchases of Tyco stock occurred on March 12,
August 31, and October 23, 1987, Second Amended Complaint ¶ 12.
Hence, two of them fall within the prospective class period,
and defendants' assertion that plaintiff could not be a member
of the proposed class is therefore erroneous. In this and all
other respects,*fn8 plaintiff's claim is "typical of the
claims and defenses of the class" as required by Rule 23(a)(3),
as his claim arises from the same alleged course of conduct and
is based on the same legal theory as is that of the class.
Dura-Bilt Corp. v. Chase Manhattan Corp., 89 F.R.D. 87, 99
(S.D.N.Y. 1981) (Edelstein, J.).
Plaintiff's ability to protect the interests of the proposed
class fairly and adequately is another matter. In so far as
class certification is concerned, the court agrees with
defendants' position that plaintiff may not at once sue
derivatively on behalf of Tyco, and bring a class action
against that corporation and its directors. The adequacy of
representation element of Rule 23(a) requires that the class
plaintiff possess no interest antagonistic to that of the
class. Eisen v. Carlisle & Jacquelin, 391 F.2d 555, 562 (2d
Cir. 1968); Michaels v. Ambassador Group, Inc., 110 F.R.D. 84,
90 (E.D.N.Y. 1986); Pellman v. Cinerama, Inc., 89 F.R.D. 386,
389 (S.D.N.Y. 1981) (Sofaer, J.). Plaintiff's concurrent
prosecution of a derivative suit on behalf of Tyco and a
securities class action against Tyco would violate that
Clearly, the proposed class and derivative actions present at
least a theoretical conflict. Substantial recovery on the class
claim may reduce the potential recovery on
behalf of the corporation on the derivative claim. Although the
court declines to embrace the per se rule against
contemporaneous derivative and direct class suits which has
been adopted by other judges in this jurisdiction, see, e.g.,
Kamerman v. Steinberg, 113 F.R.D. at 515-16; Stull v. Baker,
410 F. Supp. 1326, 1336-37 (S.D.N.Y. 1976) (Conner, J.)
(dictum); Hawk Industries, Inc. v. Bausch & Lomb, Inc., 59
F.R.D. at 623-24, putative class representatives in such suits
should at least be expected to explain why potential conflicts
are not likely to materialize in their particular case.*fn9 As
plaintiff is unable to do so here, the court finds class
certification inappropriate so long as plaintiff maintains his
To recapitulate, defendants' motion to dismiss the securities
claim for failure to state a cause of action is denied as is
their motion to dismiss the derivative suit due to plaintiff's
failure to make a demand upon the Tyco board. The securities
claim is dismissed with prejudice as against Benson Selzer for
failure to plead fraud with sufficient particularity, and the
derivative action is dismissed with prejudice as to defendants
Pearce, Benson Selzer and Geoffrey Selzer. Finally, plaintiff's
motion for class certification is denied as he cannot maintain
that suit and his derivative action simultaneously.
IT IS SO ORDERED.