*938 MEMORANDUM
The three counts of the second amended complaint, briefly summarized, undertake to allege the following claims:
(1) A spurious class action by the plaintiffs and others similarly situated, under the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934, for damages .. allegedly incurred from the purchase of defendant corporation’s stock in reliance upon false statements in a рrospectus issued by defendants.
(2) A similar class claim for rescission of the stock purchases under § 12 (2) of the 1933 Act.
(3) A derivative action by threе of the plaintiffs, under §§ 10(b) and 29 (b) of the 1934 Act and S.E.C. Rule 10b-5 thereunder, for alleged damages to the corporation caused by six of the individual defendants when they acquired large amounts of the corporate defendant’s shares in exchange for interests in worthless property.
Thе individual defendants, with one exception, and the corporation have moved under Rule 12(b) (6), Fed.R.Civ.P., to dismiss the third count for failure to state a claim upon which relief can be granted. The several contentions in support of the motion, and the reasons for rejecting them, are as follows:
1. Acknowledging that a derivative action will lie under the 1934 Act where a corporation has been fraudulently induced tо sell its shares for no or inadequate consideration, e. g., Hooper v. Mountain States Sec. Corp.,
For purposes of their claim against the cоrporation as well as the individual defendants, plaintiffs are entitled to impute the alleged fraud of the directors to the corpоration. At the same time it is clear that the corporation, as “seller” of stock and claimant in the-third count, may be defrauded by all its dirеctors, and is not barred from relief by the notion of imputed knowledge. Ruckle v. Roto American Corp., supra,, at 28. It follows that the third count, viewed as a matter of substance, is adequate in this respect. To be sure, the-formal result of the incorporation by reference is the self-contradiction on which defendants fasten. But this is not. ground for adding to the extensive paper work already invested in the pleading-stage of this action. The third count adequately alleges that the corporation was deceived. The whole subject of causation is, in any case, “to be resolved at trial, not here.” J. I. Case Co. v. Borak,
2. Defendants urge that there is a fatal inconsistency betwеen plaintiffs’ role as protectors and prosecutors of the-corporation’s interests in the derivative third count and their demands for recovery from the corporation in the first two. * It may be questioned at the outset, whether an assertion like this is appro *939 priate under Rule 12(b) (6). If the count in question, taken by itself, states “a claim upon which relief can be granted,” this is literally enough to withstand the motion defendants have chosen to make.
Going beyond this relatively formal point, the claim of inconsistency and “conflict of interests” cannоt avail defendants at this stage. Such inconsistency in pleading is by now familiarly allowable in the federal courts. See Rademacher v. Russ,
As to the role of plaintiffs as both “friend” and “enemy” to the corporation, this surface duality is in fact a routine matter in the courts. For more purposes than pleading, “antagonism” between the derivative plaintiff and those who really run (i. e., are) the corporation is a commоn phenomenon. Cf. Smith v. Sperling,
3. It is said, finally, that the complaint lacks allegations required by Rule 23(b), Fed.R.Civ.P.
First, defendants argue, there is no allegation that plaintiffs were shareholders “at the time of the transaction [s] ” of which they complаin. While there is some uncertainty regarding exact dates in the complaint, its gist is that plaintiffs acquired their shares “on or about” February 11, 1963, as а result of the very exchange offer around which the lawsuit revolves. According it the favorable construction to which it is entitled on such а motion, the complaint adequately indicates that plaintiffs became, and thus “were,” shareholders “at the time of the transactiоn.” At least this is not a case within the evil at which the Rule is aimed, where the stock was bought to speculate in litigation. See Gottesman v. General Motors Corp.,
Similarly, the complaint adequately states, within the second portion of Rule 23(b), “the reasons for not making” efforts to have action tаken by the directors or shareholders. It is alleged that one hostile director controls the board and that the individual defendants among them own a preponderant majority of the shares. The obvious conclusion is also stated — that a demand upon the directors to bring the suit “would be futile.” This is enough. See, e. g., Gottesman v. General Motors Corporation,
The motion to dismiss is denied.
It is so ordered.
Notes
It is also sаid that proof of Count III will inevitably establish Counts I and II, that this will ruin the corporation, and that the third count, therefore, cannot possibly be for thе corporation’s benefit. The speculative train does not necessarily go where defendants say. There is room in tlie complaint for imagining many things, including success for plaintiffs on Count III along with failure on I and II. If the holocaust defendants envision materializes, that will be time enough to determine where the burden of the liabilities should ultimately rest.