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RMED INTL., INC. v. SLOAN'S SUPERMARKETS

March 2, 1995

RMED INTERNATIONAL, INC., Plaintiff, against SLOAN'S SUPERMARKETS, INC. and JOHN A. CATSIMATIDIS, Defendants.


The opinion of the court was delivered by: PETER K. LEISURE

 LEISURE, District Judge:

 This is an action for securities fraud violations. Plaintiff, RMED International, Inc. ("RMED"), is a Colorado corporation. *fn1" Defendant, Sloan's Supermarkets, Inc. ("Sloan's"), is a Delaware corporation with its principal place of business in New York, New York. Defendant, John A. Catsimatidis ("Catsimatidis"), is and has been the chairman of the board, chief executive officer, treasurer, and 37% shareholder of Sloan's since July 28, 1988, *fn2" and is and has been at all times relevant hereto, the sole shareholder, president, and chief executive officer of Red Apple Companies, Inc. ("Red Apple"). Red Apple, like Sloan's, is in the supermarket business, and since April 1991, Red Apple has operated twenty-one supermarkets in New York City. Those supermarkets use the name "Sloan's," as well as the names "Red Apple" and "Gristede's."

 RMED alleges that defendants violated Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j (1983) ("SEA"), and Rule 10b-5 promulgated thereunder, by failing to disclose to its shareholders and investors that defendants were targets of an investigation by the United States Federal Trade Commission ("FTC") concerning the illegal concentration in New York City of supermarkets owned or controlled by Catsimatidis.

 Defendants move to dismiss the complaint claiming that plaintiff failed to plead fraud with particularity in accordance with Rule 9(b) of the Federal Rules of Civil Procedure. Specifically, defendants claim that plaintiff, in alleging violations of § 10(b) and Rule 10b-5 of the SEA, failed adequately to plead scienter. Defendants also move to dismiss the plaintiff's state law claims for lack of subject matter jurisdiction.

 For the reasons stated below, the motion is denied in its entirety.

 BACKGROUND

 Since March 1993, Sloan's has been operating supermarkets in New York City. Prior to 1991, all New York City supermarkets named "Sloan's" were owned by Old Sloan's. In April 1991, Old Sloan's sold 21 Sloan's supermarkets to Red Apple. It was at this point that Old Sloan's changed its name to CKMR.

 In September 1991, the Attorney General's Office of the State of New York, the Antitrust Bureau, and the FTC began to investigate whether the purchase of the 21 supermarkets by Red Apple violated the antitrust laws and whether Red Apple and Catsimatidis should be required to divest themselves of certain of their Sloan's supermarkets.

 On December 12, 1992, Sloan's, under its prior name of Designcraft, entered into an agreement with CKMR to acquire 11 Sloan's supermarkets in New York City. Those supermarkets were actually acquired in March 1993. It was at this point that Designcraft changed its name to Sloan's Supermarkets, Inc., the defendant herein. Thus, from April 1991 to the present, Red Apple has operated 21 Sloan's supermarkets and from March 1993 to the present, Sloan's has operated 11 Sloan's supermarkets in New York City.

 During the period from November 18, 1993 through December 21, 1993, RMED acquired, in public trade, 226,000 shares of Sloan's stock at prices ranging from $ 7.75 to $ 11.25 per share. RMED sold almost all of these shares between December 29, 1993 and July 29, 1994.

 On May 27, 1994, the FTC issued a complaint against Sloan's, Red Apple and Catsimatidis alleging antitrust violations and seeking divestiture of either Sloan's or Red Apple. *fn3"

 Plaintiff notes that the closing price of Sloan's stock on May 26, 1994, the day before the issuance of the FTC complaint, was $ 6.13 per share. It further notes that on June 1, 1994, the day before the public announcement of the FTC complaint, the price of the stock had fallen to $ 5.75 per share. Lastly, plaintiff observes that the ...


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