The opinion of the court was delivered by: RAYMOND J. DEARIE
Plaintiffs bring this securities fraud action alleging violations of Section 10(b) of the Securities and Exchange Act of 1934 (the "Act"), Rule 10b-5 promulgated thereunder, and pendent state law claims. This suit arises out of the 1986 sale of plaintiffs' stock in Eagle Electric Manufacturing Company ("Eagle"), back to Eagle under a stock purchase agreement between the corporation and its shareholders. The sale was negotiated by defendant Melvin Ludwig ("Ludwig"), Eagle's Chairman and President, and plaintiff Gail Bilick, Ludwig's first cousin. Defendants have filed a motion to dismiss the amended complaint pursuant to Fed. R. Civ. P. 12(b)(6), for failure to allege a cause of action under section 10(b), and pursuant to Fed. R. Civ. P. 9(b), for failure to plead fraud with particularity. Through supplemental letter briefs, defendants more recently have moved to dismiss on grounds that plaintiffs' federal securities claim is barred by the applicable statute of limitations.
The following summary of the facts is taken from the amended complaint and the exhibits thereto.
Eagle is a closely-held, family corporation organized and existing under the laws of the State of New York. Eagle is a major manufacturer of electrical products, with annual sales in excess of $ 100 million. Defendant Ludwig has been the President and Chairman of the Board of Eagle since 1981, and, at all times relevant to this action, its dominant and controlling shareholder. Together with his immediate family, Ludwig owns or controls almost 39% of Eagle's issued and outstanding common and preferred shares. Amended Complaint, at PP 7-8. Throughout the relevant period, plaintiff Gail Bilick owned 432 shares of the issued and outstanding Eagle preferred stock, and 17 shares of the issued and outstanding Eagle common stock. Her children -- Alison, Erica, and Brian Bilick -- each owned eight shares of Eagle common stock. Overall, plaintiffs owned 1% of the Eagle issued and outstanding common stock and 2% of the Eagle issued and outstanding preferred shares. Amended Complaint, at P 9.
The Shareholders' Agreement
In the Fall of 1971, the Eagle shareholders, including Gail Bilick, signed a Shareholders' Agreement (the "Agreement"), providing that they would not sell any of their Eagle shares to third parties without first offering to sell them back to Eagle, "at a reasonable price and not above its book value . . . ." Agreement, at P 3.
Notice of the shareholder's intention to sell was to be given to Eagle by registered mail and addressed to the principal office of the corporation. Id. If Eagle considered the offered price unreasonable, it could submit the dispute to arbitration to determine a fair and reasonable price. Id. at P 3. New York law was to govern any dispute arising from the Agreement. Id. at P 18.
On or about February 28, 1986, Rick Bilick, Gail's husband, lost his job at Price Waterhouse as a manager of manufacturer consulting services. In April of 1986, Gail Bilick telephoned Ludwig to request that Rick be employed by Eagle in a similar capacity. In a later telephone call to Ludwig, Gail Bilick explained that she and her husband were having financial difficulties, and that aside from their Eagle shares, they were without other income or assets. Ludwig offered neither employment to Rick Bilick nor any loan to the Bilick family.
In early May of 1986, Gail Bilick expressed an interest in selling a portion of her shares back to Eagle, but Ludwig informed her that "she was required to sell 'all or none,'" and offered a "take it or leave it" price of $ 15,000 per share, stating that the book value of the shares was $ 25,000 per share. Amended Complaint, at PP 27-28.
On May 2, 1986, Gail Bilick went to the defendants' offices and signed a letter agreement offering for sale to Eagle all of the plaintiffs' common and preferred Eagle shares for a total purchase price of six hundred and fifty-eight thousand and two hundred dollars ($ 658,200.00) -- $ 15,000 for every share of common stock, and $ 100 for every share of preferred. All of plaintiffs' shares were delivered to Eagle that same day.
Plaintiffs now allege a litany of improper acts, misrepresentations, and omissions with respect to this securities transaction and the value of the Bilick shares. Among these, plaintiffs assert that 1) they were never advised of certain purchase option arrangements between Ludwig and the corporation in place at the time of the stock sale, Amended Complaint, at P 18; 2) they were never advised of various offers from other companies to purchase Eagle in or about 1985, id. at P 19; 3) Ludwig intentionally misrepresented to Gail Bilick that she must sell "all or none" of her shares id. at P 34; 4) at the time of the stock sale Gail Bilick had no knowledge of the terms of the Agreement, that defendants had never provided her with a copy of it, and she had only signed the signature page of the Agreement at her mother's request, id. at PP 10, 26, 29;
5) for fifteen years defendants had failed to provide plaintiffs with financial and other information about Eagle as required by the corporate by-laws, id. at P 34; 6) at the time of the sale plaintiffs had no financial documentation regarding the book or other value of their shares, id. at PP 29-30; 7) Ludwig's representation of "book value" was based upon unaudited financial statements, and not calculated in accordance with the terms of the Agreement id.; and 8) Ludwig misrepresented plaintiffs' ability to sell their Eagle shares at a price in excess of $ 15,000 per share. In sum, plaintiffs allege that due to Ludwig's position at Eagle they reasonably relied solely on his misrepresentations in deciding to sell their stock, and that but for Ludwig's misrepresentations and omissions plaintiffs would not have sold their shares, or would have sold them at a higher price. Id. at PP 36-38.
On a motion to dismiss a complaint, a court must construe the allegations in the complaint in the light most favorable to the plaintiffs and accept those allegations as true. See Scheuer v. Rhodes, 416 U.S. 232, 236, 40 L. Ed. 2d 90, 94 S. Ct. 1683 (1974); Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir. 1989). The Court "'is merely to assess the legal feasibility of the complaint, not to assay the weight of the evidence which might be offered in support thereof,'" Mekhjian v. Wollin, 782 F. Supp. 881, 884 (S.D.N.Y. 1992) (citing Geisler v. Petrocelli, 616 F.2d 636, 639 (2d Cir. 1980)), and generally is limited to the facts as alleged in the pleadings, and to any documents attached as exhibits or incorporated by reference. Cosmas, supra, at 13. A complaint will be dismissed if the plaintiffs can prove no set of facts supporting their claims. E.g., Dahlberg v. Becker, 748 F.2d 85, 88 (2d Cir. 1984), cert. denied, 470 U.S. 1084, 85 L. Ed. 2d 144, 105 S. Ct. 1845 (1985).
On the instant motion, this Court must first address the statute of limitations arguments advanced by the defendants. After briefing and oral argument, defendants for the first time raised a statute of limitations issue in light of the Supreme Court's June 19, 1991, decision in Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 115 L. Ed. 2d 321, U.S. , 111 S. Ct. 2773 (1991). Lampf established a uniform limitations period for federal securities actions brought under section 10(b) of the Act. Rejecting the prior federal court practice of borrowing state statute of limitations for federal securities actions, Lampf instead adopted a single federal limitations period, permitting actions to be brought not more than one year from the date the alleged securities fraud was or reasonably should have been discovered, and, in any event, not more than three years from the date of the securities transaction in question (hereinafter the "one/three rule"). In a separate decision decided that same day, the Court essentially foreclosed the question of retroactivity of Lampf, see James B. Beam Distilling Co. v. Georgia, U.S. , 111 S. Ct. 2439, 115 L. Ed. 2d 481 (1991), holding that, "when the Court has applied a rule of law to the litigants in one case it must do so with respect to all others not barred ...