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RECCHION v. WESTINGHOUSE ELEC. CORP.

January 25, 1985

Recchion
v.
Westinghouse Electric Corporation, et al.


Bloch, District Judge.


The opinion of the court was delivered by: BLOCH

Opinion of Bloch, District Judge.

 Counts I through III are brought against Westinghouse, WPS, WIPS, Price Waterhouse, and five individual defendants. Count I alleges a violation of § 10(b) of the Securities Exchange Act of 1934 (hereinafter referred to as "the Act"), 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5, promulgated thereunder, which prohibits the use of fraudulent or deceptive practices in connection with the purchase or sale of a security. Count II alleges a violation of § 14(a) of the Act, 15 U.S.C. § 78n(a), and Rule 14a-9 promulgated thereunder, 17 C.F.R. § 240.14a-9, which prohibits the solicitation of false and misleading proxies and proxy material. Count III alleges a cause of action based upon breach of the defendants' fiduciary duty and common law fraud. Count IV is brought against the five individual defendants and alleges a violation of § 10(b) of the Act and Rule 10b-5 which also prohibits corporate insiders from trading on material inside information not known to the investing public and common law fraud. Count V is a derivative count brought on behalf of Westinghouse against all of the individual defendants. The Court has jurisdiction under 15 U.S.C. § 78aa, 28 U.S.C. §§ 1331 and 1337, diversity of citizenship, and pendent jurisdiction.

 Although brought as a class action on behalf of all similarly situated Westinghouse shareholders for the period of August 1977 through May 13, 1980, the Court has not so certified it.

 Presently before the Court are the following motions: (1) all corporate defendants and individual defendants named in Counts I through IV of the complaint (except Price Waterhouse) motion to dismiss Counts I through IV or, in the alternative, for a more definite statement; (2) Price Waterhouse's motion to join in the other defendants' motion to dismiss based upon plaintiff's lack of standing; (3) Price Waterhouse's motion to dismiss the complaint; (4) Westinghouse's motion to dismiss Count V; (5) the individual defendants' motion to join in Westinghouse's motion to dismiss Count V; (6) petition of defendants named in Counts I through IV (except Price Waterhouse) and the individual defendants named in Count V for an order requiring plaintiff to post security and costs; and (7) petition of Westinghouse to require plaintiff to post security for reasonable expenses and attorney's fees.

 Before addressing the merits of defendants' motions, the Court deems it appropriate to review the law governing a court's review of a motion to dismiss. When confronted with a motion to dismiss, the Court must construe all of the allegations of the complaint as true. Scheuer v. Rhodes, 416 U.S. 232, 40 L. Ed. 2d 90, 94 S. Ct. 1683 (1974). On a Fed. R. Civ. P. 12(b)(6) motion to dismiss, such as that presented in this case, the Court must limit its consideration of the facts to those alleged in the complaint. *fn1" Biesenbach v. Guenther, 588 F.2d 400, 402 (3d Cir. 1978). According to the United States Supreme Court, "a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957) (footnote omitted). This stringent standard guides the Court in its review of defendants' motions.

 All of the defendants have moved, pursuant to Fed. R. Civ. P. 12(b)(6), to dismiss Counts I through IV on the grounds that: (1) plaintiff does not have standing; and (2) plaintiff fails to plead fraud with particularity as required by Fed. R. Civ. P. 9(b). In the alternative, defendants request that, pursuant to Fed. R. Civ. P. 12(e), plaintiff be required to amend his complaint to contain a more definite statement of his allegations.

 A. Standing

 Defendants argue that plaintiff does not have standing to state a claim under § 10(b) *fn2" and Rule 10b-5, *fn3" since the alleged fraudulent misrepresentations and activities were not made "in connection with the purchase or sale of any security." In Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 44 L. Ed. 2d 539, 95 S. Ct. 1917 (1975), the Supreme Court held that only plaintiffs who are actual purchasers and sellers of securities have standing to maintain actions for violations of § 10(b) and Rule 10b-5. Since plaintiff avers in paragraph 1 of his complaint that he sold shares of Westinghouse stock during the period of the alleged fraudulent activities, defendants' motion to dismiss Counts I and IV based upon plaintiff's lack of standing is denied.

 All of the defendants state that Count II must be dismissed because plaintiff was not a Westinghouse shareholder and, therefore, does not have standing to sue under § 14(a) *fn4" and Rule 14a-9 *fn5" for violations of the proxy rules. Since plaintiff avers that he is now and during the entire relevant period a Westinghouse shareholder, defendants' motion to dismiss Count II based upon plaintiff's lack of standing is denied. (Complaint para. 1, docket entry No. 1).

 The gravamen of Count II is that defendants "at various times during the class period" distributed proxy solicitations which did not reveal the extensive mismanagement and fraudulent activity alleged in Count I. However, plaintiff does not assert that he granted a proxy in reliance on the contested solicitations. Accordingly, plaintiff does not have standing to assert a direct action for violations of § 14(a) and Count II is, therefore, dismissed. See Gaines v. ...


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