Goldberg v. Meridor,

567 F.2d 209 (2nd Cir. 1977), cert. denied, 434 U.S. 1069 (1978)

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Nature of the Case

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Facts

P, a stockholder of Universal Gas & Oil Company, Inc. (UGO) sought to recover damages and to obtain other relief against UGO's controlling parent, Maritimecor, S.A. The agreement in dispute was UGO's issuance to Maritimecor of up to 4,200,000 shares of UGO stock and its assumption of all of Maritimecor's liabilities (including a debt of $7,000,000 owed to UGO) in consideration of the transfer of all of Maritimecor's assets (except 2,800,000 UGO shares already held by Maritimecor). P alleged that the contract was grossly unfair to UGO and violated § 10(b) and the Rule 10b-5 and common law fiduciary duties. UGO moved for a stay pending P's posting security for expenses and costs. P was required either to meet the exemptions from posting security under § 627, post the security otherwise required or 'amend his complaint in this action to eliminate any and all claims based on or arising out of state common law or state statutory law.' The amended complaint alleged: The defendants engaged in 'a conspiracy or plan' 'to cause UGO to raise funds from the public by a public offering and then by various transactions hereafter set forth, including the transfer of UGO stock to Maritimecor for the latter's assets and liabilities, use the proceeds of the offering and the assets of UGO for the benefit of defendants Maritimecor and Maritime Fruit.' Ds caused UGO to raise monies to build tankers and then they sold two of them for a $14,000,000 profit. Ds also caused UGO to make loans to Maritimecor so that $7,000,000 was owed. Ds then caused UGO to enter into the agreement described supra. P claims the agreement was fraudulent and unfair in that the assets of Maritimecor were overpriced, of insufficient value, and the liabilities exceeded the value of its assets or were so great that the net asset value was insufficient consideration. The issuance of the prospectus and the foregoing transactions constituted the employment of a device, scheme or artifice to defraud, the making of untrue statements of material fact and the omission to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, and the engaging in acts, practices, and courses of conduct which operated as a fraud or deceit upon UGO as the seller of up to 4,200,000 shares of UGO's common stock for Maritimecor's liabilities and assets, and upon UGO's minority stockholders. D filed a motion to dismiss for failure to state a claim under § 10(b) and Rule 10b-5. All directors of UGO were aware of the facts relating to the transaction. The complaint was dismissed and P appealed.