Act by failing to file disclosure reports required by that section. Plaintiffs seek monetary damages. Defendants have moved to dismiss, contending that no implied private right of action for damages exists under section 13(d).
Section 13(d) requires any "group" holding more than 5% of the outstanding stock of a company to file disclosure reports with the SEC setting forth the reasons for the group's accumulation of a 5% interest and stating whether the group plans to attempt a takeover. 15 U.S.C.A. § 78m(d). Thus, the principal purpose of section 13(d) is to alert the marketplace to any large, rapid accumulation of securities that might lead to a shift in corporate control. See GAF Corp. v. Milstein, 453 F.2d 709, 717 (2d Cir. 1971), cert. denied, 406 U.S. 910, 92 S. Ct. 1610, 31 L. Ed. 2d 821 (1972). Plaintiffs claim that Klein and Krekstein constituted such a group and that they failed to file the required reports disclosing their negotiations with Properties Ltd. and the impending sale of control of CRT.
Section 18 of the 1934 Act provides that purchasers and sellers of securities who have knowledge of and rely upon any report filed pursuant to the securities laws that contains misrepresentations may seek monetary damages. See Stromfeld v. Great Atlantic & Pacific Tea Co., 484 F. Supp. 1264, 1268 (S.D.N.Y.), aff'd mem., 646 F.2d 563 (2d Cir. 1980); Myers v. American Leisure Time Enterprises, Inc., 402 F. Supp. 213, 214-15 (S.D.N.Y.1975), aff'd mem., 538 F.2d 312 (2d Cir. 1976). A failure to file, however, does not provide a basis for a claim under section 18. Stromfeld at 1269.
To read into section 13(d) a cause of action for damages by shareholders who do not allege detrimental reliance as purchasers or sellers on misrepresentations in reports filed, but simply a failure to file required reports, would be to authorize an end-run around section 18. For the reasons adduced by Judge Weinfeld in Myers, 402 F. Supp. at 214-15, a decision which in turn relies in some measure on the Third Circuit's rejection of a similar contention under section 13(a), In re Penn Central Securities Litigation, 494 F.2d 528, 539-40 (3d Cir. 1974), the invitation to expand section 13(d) in the manner proposed is declined.
Defendants have moved to dismiss plaintiffs' derivative claims for failure to allege a demand on the corporate directors as required by Fed.R.Civ.P. 23.1. See Waldman v. Carey, 82 F.R.D. 469, 471 (E.D.Pa.1979). Although plaintiffs respond that a demand would have been futile and therefore need not be alleged, plaintiffs have failed to set forth with particularity the basis for their claim of futility. Amending the complaint, however, would be fruitless. The legal analysis relevant to the derivative federal claims is identical to that pertaining to the direct federal claims. The derivative federal claims, therefore, are also dismissed.
Plaintiffs have asserted several pendent state law claims against the defendants. The exercise of pendent jurisdiction is a discretionary matter. As a general rule, "if the federal claims are dismissed before trial . . . the state claims should be dismissed as well." United Mine Workers v. Gibbs, 383 U.S. 715, 726, 86 S. Ct. 1130, 1139, 16 L. Ed. 2d 218 (1966); cf. Rosado v. Wyman, 397 U.S. 397, 402-05, 90 S. Ct. 1207, 1212-14, 25 L. Ed. 2d 442 (1970). In this Circuit, in the absence of "'exceptional circumstances,'" it is an abuse of discretion for a district court not to dismiss the pendent state claims where the federal claims are dismissed on the pleadings. Tully v. Mott Supermarkets, Inc., 540 F.2d 187, 196 (3d Cir. 1976); cf. Kavit v. A.L. Stamm & Co., 491 F.2d 1176, 1180 (2d Cir. 1974); see Rogin v. Bensalem Township, 616 F.2d 680, 697 (3d Cir. 1980); Merritt v. Colonial Foods, Inc., 499 F. Supp. 910, 916 (D.Del. 1980).
Nothing of which this court is aware suggests that "exceptional circumstances" are present here. However, inasmuch as the parties have not addressed this question in the submissions now before the court, plaintiffs will be allowed ten days from the date of this opinion and order to submit a memorandum undertaking to demonstrate that this case is in fact "exceptional" in the sense contemplated by our Court of Appeals in Tully, supra, and defendants will then have one week in which to respond.
For the reasons set forth in the accompanying memorandum, it is hereby ORDERED that:
1. Plaintiffs will be permitted ten days from the date of this opinion to brief the issue whether they will be left without a remedy in state court should their state claims be dismissed by this court;
2. Defendants will be permitted one week to respond to plaintiffs' brief.
3. In all other respects, defendants' motion to dismiss plaintiffs' amended complaint is GRANTED.