Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Official citation and/or docket number and footnotes (if any) for this case available with purchase.

Learn more about what you receive with purchase of this case.


United States District Court, Southern District of New York

June 30, 1999


The opinion of the court was delivered by: Owen, District Judge.


The plaintiff's class action complaint, initially filed in New York State Court, and thereafter removed here, alleges that defendant USA Network, Inc., (hereafter "USA" or "USAi") and its directors are liable to her and the class of current and prospective stockholders in breach of fiduciary duty in that they were advised that USA was getting into TV merchandising in Italy, but not told of the many problems involved which USA knew rendered such a venture highly unlikely.*fn1 Paragraph 5 of the complaint reads:

  This action is brought as a class action against the
  directors of USAi on behalf of all persons, as more
  particularly defined below, who own USAi common stock
  common [sic] for breach of fiduciary duty, against
  SBS as an aider and abettor, and against USAi for
  injunctive relief.

Defendants move before me to dismiss on the ground that the action may not be maintained under new securities law provisions entitled the Securities Litigation Uniform Standards Act of 1998, PL 105-353, 112 Stat. 3227 (1998) (SLUSA). Plaintiff by cross-motion seeks a remand to State Court.

I conclude that this action does not become assailable under SLUSA, which bars class actions based on state law which allege misrepresentations or omissions "in connection with the purchase or sale of a covered security," 15 U.S.C. § 78bb(f)(1), because the pleader of the complaint used language "acquired their [sic] or continue to hold their securities" in the second cause of action at paragraph 62 on page 16, for this does not change the clearly pleaded allegation of "breach of fiduciary duty" alleged in paragraph 5 of the complaint. Rather, the claim is preserved under the Securities Exchange Act of 1934, § 78bb(f)(3)(A)(I), as amended by SLUSA, as it is based on the common law of the state of Delaware. Instructive here is Zirn v. VLI Corp., 681 A.2d 1050 (Del. 1996) where the court defined what it had before it as a state cause of action in language applicable here.*fn2

  [D]irectors of Delaware corporations are under a
  fiduciary duty to disclose fully and fairly all
  material information within the board's control when
  it seeks shareholder action. . . . In addition . . .
  directors are under a fiduciary obligation to avoid
  misleading partial disclosures.

Id. at 1056. In further support, Malone v. Brincat, 722 A.2d 5 (Del. 1998), the court stated in confirmatory language applicable here:

  The historic roles played by state and federal law in
  regulating corporate disclosures have been not only
  compatible but complementary. That symbiotic
  relationship has been perpetuated by the recently
  enacted federal Securities Litigation Uniform
  Standards Act of 1998. Although that statute by its
  terms does not apply to this case, the new statute
  will require securities class actions involving the
  purchase or sale of nationally traded securities,
  based upon false or misleading statements, to be
  brought exclusively in federal court under federal
  law. The 1998 Act, however, contains two important
  exceptions: . . . the second preserves the
  availability of state court class actions, where
  state law already provides that corporate directors
  have fiduciary disclosure obligations to
  shareholders. These exceptions have become known as
  the "Delaware carveouts." (Footnotes omitted.)
  (Italics supplied.)

Id. at 13. Accordingly, this case being based under Delaware common law may be maintained in the New York State courts by a private party under § 78bb(f)(3)(A)(i), and this court is required to and does hereby remand it to the State Court pursuant to (§ 78bb(f)(3)(D)).

So ordered.

Buy This Entire Record For $7.95

Official citation and/or docket number and footnotes (if any) for this case available with purchase.

Learn more about what you receive with purchase of this case.