The opinion of the court was delivered by: Robert L. Carter, District Judge.
The issues before the court are defendants' motion for
dismissal on numerous grounds and plaintiff's motion for class
certification. Plaintiff Lester Brickman brought this action
against defendants Tyco Toys, Inc. ("Tyco"), Tyco's former
officers and inside directors, and several other individual and
corporate defendants*fn1 alleging violations of federal
securities laws, negligent misrepresentation and breach of
fiduciary duty in connection with three purportedly improper
transactions. In an opinion dated October 4, 1989, Brickman v.
Tyco Toys, Inc., 722 F. Supp. 1054
(S.D.N.Y. 1989) (Carter, J.), familiarity with which is
presumed, the court dismissed plaintiff's claims for
misrepresentation and breach of fiduciary duty and dismissed
the securities claim as to three of the defendants, all without
prejudice. Plaintiff has repleaded his securities claim against
all individual defendants but Geoffrey Selzer, as well as his
claim for breach of fiduciary duty on behalf of Tyco against
all individual defendants.*fn2 Second Amended Complaint, ¶¶
The facts germane to the instant motions are similar to those
set forth in the court's previous opinion and can be stated
briefly here. Plaintiff, a shareholder of Tyco, asserts that a
public offering of Tyco common stock on February 20, 1986 (the
"Public Offering"), and a series of transactions conducted by
the defendants thereafter, were part of an unlawful scheme to
divert funds from Tyco to other business entities in which the
defendants had an interest. The first of these transactions was
a $2.5 million loan made by Tyco to Savoy Industries (the "Tyco
Loan") on April 22, 1987.*fn3 Plaintiff asserts that the
defendants' participation in, and failure to disclose material
facts regarding the Tyco Loan and subsequent transactions
constitute a violation of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), 78t (1981
& Supp. 1989), and Rule 10b-5 promulgated thereunder,
17 C.F.R. § 240.10b-5, as well as a breach of defendants' fiduciary duty
to Tyco shareholders.
Defendants seek to dismiss plaintiff's federal and state law
claims on numerous grounds and oppose plaintiff's motion for
class action certification. First, defendants contend that
plaintiff may not maintain both a derivative claim on behalf of
Tyco, and a direct claim against Tyco in the same action.
Defendants also seek to have plaintiff's securities claim
dismissed as to all defendants on the ground that the Rule
10b-5 allegations in the complaint fail to state a claim upon
which relief may be granted under Rule 12(b)(6), F.R.Civ.P.
Defendants also move for dismissal of the Rule 10b-5 claim
against Benson Selzer under Rule 12(b)(6), arguing that he owed
no duty of disclosure to plaintiff.
Next, defendants once again move for dismissal of plaintiff's
securities fraud claim against Benson Selzer for failure to
plead fraud with sufficient particularity in violation of Rule
9(b), F.R.Civ.P. They assert that the complaint does not aver
facts supporting an inference of controlling person liability
or of scienter of Benson Selzer, and that plaintiff has failed
to plead with particularity that Benson Selzer aided and
abetted a Rule 10b-5 violation.
As to plaintiff's derivative claims, defendants argue that
plaintiff lacks the capacity to prosecute the derivative claims
because he has failed to make a demand upon the board of
directors. They further assert that the derivative claims
against Benson Selzer, Geoffrey Selzer, and Harry J. Pearce
must be dismissed because these defendants are not charged with
any breach of fiduciary duty.
Finally, in opposing plaintiff's motion for class
certification, defendants argue that plaintiff is not properly
a member of the class that would be appropriate in this suit,
and therefore his claims are not typical of the class.
Defendants further contend that because plaintiff seeks to
assert both a derivative claim on behalf of Tyco and a class
action claim against Tyco and the director defendants, he fails
to satisfy the adequacy of representation requirement of Rule
Regarding the derivative claim, plaintiff concedes his
failure to make a demand upon the Tyco board but argues that
such demand should be excused as futile. He further contends
that defendants Pearce, Benson Selzer and Geoffrey Selzer owed
a fiduciary duty to Tyco by virtue of influence exerted by
these defendants over the corporation.
In defending his motion for class certification, plaintiff
argues that his stock purchases and alleged injury make his
claims typical of the proposed class and reiterates his
position that there is no inherent conflict in simultaneous
class and derivative actions.
Whatever its relevance to the issue of class
certification,*fn4 the fact that plaintiff seeks to prosecute
direct class and derivative actions simultaneously does not
provide a basis for dismissal for failure to state a claim
under Rule 12(b)(6), F.R. Civ.P. Indeed, all of the cases cited
by defendants in support of such dismissal in fact speak only
to the issue of class certification under Rule 23, F.R.Civ.P.
See, e.g., Kamerman v. Steinberg, 113 F.R.D. 511, 515-16
(S.D.N.Y. 1986) (Motley, J.), modified, 123 F.R.D. 66 (S.D.N Y
1988); Petersen v. Federated Development Co., 416 F. Supp. 466,
475 n. 6 (S.D.N.Y. 1976) (Haight, J.); Hawk Indus., Inc. v.
Bausch & Lomb, Inc., 59 F.R.D. 619, 624 ...