broader than the remedy that Congress chose to provide."). Gray has pointed to no legislative history (and this court has found none) which suggests that Congress intended to create a private right of action for injunctive relief under section 13(a).
Gray argues that a private right of action should be implied because Congress enacted section 13(a) for the protection of investors. That Congress intended to protect investors does not necessarily mean that Congress intended to provide them with a private right of action. See id., 442 U.S. at 578, 99 S. Ct. at 2490 ("Certainly, the mere fact that § 17(a) was designed to provide protection for brokers' customers does not require the implication of a private damages action in their behalf."). Congress entrusted enforcement to the SEC, which can seek both damages and injunctive relief for violations of section 13(a). See 15 U.S.C. § 78u.
Finally, Gray urges that section 13(a) is analogous to section 13(d) and that this court should follow the cases implying a private cause of action under section 13(d). Section 13(d), which requires a person who acquires more than 5% of a corporation's stock to file a report with the SEC, was added as part of the Williams Act in 1968, 34 years after section 13(a) was enacted. Thus, the legislative history and legal context in which Congress enacted the provisions--two factors relevant to whether a private right of action should be implied--are different. See Merrill Lynch, Pierce, Fenner & Smith v. Curran, 456 U.S. 353, 378, 102 S. Ct. 1825, 1839, 72 L. Ed. 2d 182 (1982) ("In determining whether a private right of action is implicit in a federal statutory scheme when the statute by its terms is silent on that issue, the initial focus must be on the state of the law at the time the legislation was enacted."). Accordingly, cases decided under section 13(d) are not persuasive on the existence of a private right of action under section 13(a).
There being no private right of action against Furia, neither is there a private right to sue its controlling persons under section 20(a) of the Act, which makes them liable only "to the same extent as" the corporation.
In sum, there is no private right of action for injunctive relief under section 13(a) of the Act. Defendants' motion for summary judgment dismissing that claim is granted.
B. Jurisdiction Over Gray's State-Law Claims
The complaint alleges that this court has federal question jurisdiction over the section 13(a) claim and has supplemental jurisdiction over the state-law claims. (Complaint, P 8.) Defendants argue that Gray's state-law claims should be dismissed because there is no basis for supplemental jurisdiction without the federal securities law claim.
Gray responds that 28 U.S.C. § 1332 provides a basis for jurisdiction because the parties' citizenship is diverse and the amount in controversy exceeds $ 50,000. Gray asserts that he is a citizen of Florida; Furia is a Delaware corporation with its principal place of business in New York; and the individual defendants are citizens of New York, Massachusetts and Texas. (Plaintiff's Memorandum in Support of Motion for Summary Judgment, at 9.)
Construing Gray's argument as a motion to amend the complaint, it is granted. Under Fed. R. Civ. P. 15(a), leave to amend "shall be freely given when justice so requires." A district court "is justified in denying an amendment if the proposed amendment could not withstand a motion to dismiss." Journal Publishing Co. v. American Home Assurance Co., 771 F. Supp. 632, 635 (S.D.N.Y. 1991) (internal quotations omitted). A motion to amend may also be denied if the movant has acted in bad faith or delayed excessively, or if the non-movant would be prejudiced by amendment. Id. at 634. Here, defendants do not claim they will be prejudiced if leave to amend is granted. Their argument that the amendment would be futile because the amount in controversy does not exceed $ 50,000 is unavailing in light of Gray's claim that defendants converted $ 250,000 of Furia's money.
Accordingly, Gray's motion to amend the complaint is granted and defendants' motion for summary judgment dismissing Gray's state-law claims for lack of subject-matter jurisdiction is denied.
C. Breach of Fiduciary Duty Claim
Gray contends that defendants breached their fiduciary duties to Furia and its shareholders by not filing the reports required by section 13(a) of the Act.
Under both New York and Delaware law,
the officers and directors of a corporation owe fiduciary duties to the corporation and its shareholders. Among those duties is the duty of care, which requires that a director perform his duties "in good faith and with that degree of care which an ordinarily prudent person in a like position would use under similar circumstances." N.Y. Bus. Corp. L. § 717(a) (McKinney 1986 & Supp. 1995). The business judgment rule applied to fiduciary breach claims "bars judicial inquiry into actions of corporate directors taken in good faith and in the exercise of honest judgment in the lawful and legitimate furtherance of corporate purposes." Auerbach v. Bennett, 47 N.Y.2d 619, 629, 419 N.Y.S.2d 920, 926, 393 N.E.2d 994 (Ct. App. 1979).
Defendants have raised a triable fact issue whether they breached their duty of care. The affidavit of defendant Waylon McMullen states that Furia's subsidiary and only source of revenue, Pat Fashion Industries, filed for chapter 11 bankruptcy protection in April 1994. (McMullen Aff. PP 4-5.) As a result of Pat Fashion's financial difficulties, Furia did not have the funds to pay for the certified financial statements Furia needed to file the reports. (Id. P 6.) One cannot say on this record that defendants' decision not to make the filings was unreasonable as a matter of law.
Plaintiff's motion for summary judgment on his breach of fiduciary duty claim is denied.
Plaintiff's motion for summary judgment on his claim under section 13(a) of the Securities Exchange Act is denied and defendants' motion for summary judgment dismissing that claim is granted. Plaintiff's motion for summary judgment on his breach of fiduciary duty claim is denied.
Plaintiff has leave to amend the complaint within 30 days.
Dated: New York, New York
August 22, 1995
LOUIS L. STANTON
U. S. D. J.