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August 1, 1995

HAROLD J. ROBBINS and ALAN FREBERG, Plaintiffs, against MOORE MEDICAL CORP., et. al., Defendants.

The opinion of the court was delivered by: SHIRA A. SCHEINDLIN


 Plaintiffs Harold J. Robbins ("Robbins") and Alan Freberg ("Freberg") sue Defendants Moore Medical Corporation, Mark E. Karp, Steven Kotler, Jerald K. Rome, Bruce Slovin, Robert H. Steele, Richard M. Tasso, Wilmer J. Thomas, Jr., Alan L. Feir, John A. Murray and Peter C. Sutro ("Moore" or "Defendants") under § 10(b) and § 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. Defendants now move for summary judgment pursuant to Fed. R. Civ. P. 56(c). For the reasons stated below, Defendants' motion is granted.


 On July 27, 1989, Freberg purchased 100 shares of common stock in Moore Medical, a national wholesale distributor of brand name and generic pharmaceuticals as well as medical and surgical supplies. See Deposition of Freberg, July 17, 1992 ("Freberg Dep."), at 25, annexed as Ex. 59 to Affidavit of Dennis J. Block, Attorney for the Individual Defendants, January 27, 1995 ("Block Aff."). Robbins purchased 100 shares of Moore Medical on August 1, 1989. See Deposition of Robbins, July 22, 1992 ("Robbins Dep."), at 11, annexed as Ex. 66 to Block Aff. In 1987, Defendants decided to augment their drug distribution business by acquiring a small manufacturer of generic drugs, West-ward, Inc. See Deposition of Rome, March 23, 1994 ("Rome Dep."), at 44, annexed as Ex. 67 to Block Aff. Plaintiffs represent a class of shareholders who purchased Moore stock from May 10, 1988, the date Moore announced its financial results for the first quarter of fiscal 1988, through March 6, 1991, when Moore announced:

The Company [Moore] is actively pursuing the sale of its Westward generic drug manufacturing subsidiary...This subsidiary has been treated as a discontinued operation and its losses from operations and the expected loss of $ 6.6 million on selling the business have been reported separately...

 Press Release dated March 6, 1991, annexed as Ex. 33 to Block Aff. Plaintiffs claim that this announcement culminated a lengthy period during which Defendants recklessly misstated or omitted information concerning West-ward that was or would have been material to a reasonable investor in Moore. See Plaintiffs' Memorandum of Law In Opposition to Defendants' Motion for Summary Judgment at 4 ("Pl. Mem.").

 Although Plaintiffs sued separately, their actions have been consolidated. See Robbins v. Moore Medical, 788 F. Supp. 179, 181-82, n.1 (S.D.N.Y. 1992). In denying Defendants' motion to dismiss the complaints, Judge Lasker summarized Plaintiffs' claims:

Plaintiffs allege two types of mutually reinforcing deceit by defendants...First, that Moore Medical fraudulently made public announcements and filed documents with the Securities and Exchange Commission (SEC) identifying factors, unrelated to West-ward, as the significant impediments to Moore Medical's profitability when in fact West-ward seriously diminished its current and future liability, or else downplaying the severity of problems at West-ward, thereby creating the false perception among investors that correction of the disclosed factors would lead to improved performance by Moore Medical overall. Second, plaintiffs allege that statements of optimism concerning West-ward's and Moore Medical's future results, which were contained in various Moore Medical announcements and SEC documents and typically accompanied any limited acknowledgments of West-ward's shortcomings which were made, were inconsistent with the Company's knowledge that West-ward's poor results would continue and would significantly lessen Moore Medical's earnings. Among West-ward's alleged undisclosed problems were ongoing inventory problems, underutilization of productive capacity, and regulatory difficulties with the Food and Drug Administration (FDA). It is alleged that the goal and result of this scheme was an inflated price for Moore Medical stock.

 Id. at 182.

 Plaintiffs allege a pattern of fraud consisting of many material omissions and misstatements, which the Court groups by year:

 A. Before and During 1988

 1. Laudatory statements by Defendants about West-ward: In a series of press releases concerning Moore's acquisition of West-ward, Defendants stated that "West-ward has established a fine reputation for quality products," Press Release dated July 15, 1987, annexed as Ex. 1 to Block Aff., and that West-ward "is highly regarded in the industry for its quality line of products," Press Release dated December 23, 1987, annexed as Ex. 3 to id. These statements were repeated in a press release announcing the completion of Moore's acquisition of West-ward. See Press Release dated January 27, 1988, annexed as Ex. 4 to id.

 2. Non-disclosure of Moore's lack of experience in managing a manufacturing operation. See Pl. Mem. at 43.

 3. Non-disclosure of Moore's capital investment in its West-ward subsidiary. See id. at 44.

 4. Non-disclosure of West-ward's losses, separate from Moore's. See id. at 47.

 5. Non-disclosure of West-ward's troubles gaining FDA approval of the "recipes" of the drugs West-ward sought to manufacture, and the deleterious effect of this trouble on Moore's financial condition. See id. at 45.

 B. In 1989

 1. Encouraging statements: that Defendants--

 (i) "looked forward to [Moore's] returning to much improved levels of growth and profitability," Press Release dated March 21, 1989, annexed as Ex. 15 to Block Aff.,

 (ii) were "very optimistic about [Moore's] sales and operations for all of 1989," Press Release dated May 3, 1989, annexed as Ex. 17 to id.,

 (iii) "anticipated continued sales growth in all areas of the business, especially at West-ward," Press Release dated November 1, 1989, annexed as Ex. 22 to id., and

 (iv) were "optimistic that it [West-ward] will become profitable during the year." 1989 Annual Report at 4, annexed as Ex. 26 to id.

 2. Non-disclosure of Moore's continued capital investment in West-ward. See Pl. Mem. at 49.

 3. No separate disclosure of West-ward's losses in Moore's 1989 Forms 10-Q. See Pl. Mem. at 50-51.

 C. In 1990

 1. FDA troubles: Defendants' statement that "the Company [Moore] believes that it complies in all material respects with the applicable statutes and regulations," including FDA regulations, 1989 Form 10-K at 5, annexed as Ex. 25 to Block Aff, in light of an FDA inspection of West-ward. See Pl. Mem. at 54. Also, later statement that "we believe the major generic drug recalls and product withdrawals of certain generic drug manufacturers are substantially over." Press Release dated August 7, 1990, annexed as Ex. 29 to Block Aff.

 2. No timely disclosure of Defendants' efforts to sell West-ward. See id. at 52.

 3. Continued announcements of West-ward's sales growth ("We are encouraged by the improved business of our West-ward manufacturing operation where sales for the quarter were about 75 percent above the quarter for a year ago," Press Release dated May 3, 1990, annexed as Ex. 27 to id.), without a separate disclosure of West-ward's losses.

 Plaintiffs claim that Defendants had a duty to disclose the information described above, and that reasonable investors would have considered the alleged misstatements and omissions materially misleading both individually and as a group. See Pl. Mem. at 36. Because the Court disagrees with both of ...

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