preferred stock by those defendants to Seeburg itself in return
for at least $1 million in equipment and $1.4 million in cash.
To pursue a double derivative claim plaintiffs — Xcor
stockholders — must demonstrate that Seeburg was a subsidiary of
Xcor. 7A Wright & Miller, Federal Practice and Procedure § 1821.
But Seeburg's voting or common stock is wholly owned by
Consolidated not Xcor. Plaintiffs attempt to avoid the problem by
pleading (Complaint ¶ 162) that "the pledge of TSC's common stock
[by Consolidated to Xcor] was in default at least as early as
May, 1979," so that Xcor was "equitable owner of all of TSC's
common stock." But as plaintiffs themselves concede at page 19 of
their reply memorandum, Xcor has yet to foreclose upon that
pledge. Whatever the purpose or motivation behind Xcor's failure
to foreclose that pledge, plaintiffs have failed to plead that
Seeburg was an Xcor subsidiary because Consolidated still
controls Seeburg's voting shares. Accordingly plaintiffs cannot
maintain the double derivative action on behalf of Xcor.
Plaintiffs' sixth and last claim is a derivative action on
Xcor's behalf against defendants Nicastro, Golenbock, Golenbock
& Barell, McKenna, Reich and Weiner for alleged violations of
their state common law fiduciary duty. Jurisdiction is asserted
on both diversity and pendent grounds.
Diversity of citizenship is properly alleged in Complaint ¶
167. As a pleading matter the Complaint asserts breaches of
fiduciary obligations. But because retaining the sixth claim in
its present form (realleging Complaint ¶¶ 1-164) would carry so
much excess baggage, the entire Complaint will be dismissed with
leave to plaintiffs to replead only the sixth claim.
This opinion has dealt with plaintiffs' third attempt to frame
an appropriate complaint. Because plaintiffs have failed properly
to plead claims under the securities law notwithstanding this
Court's explicit instructions in the Opinion, the first five
claims are dismissed with prejudice. Denny v. Barber,
576 F.2d 465, 471 (2d Cir. 1978). Plaintiffs' sixth claim is dismissed
without prejudice, with leave to plaintiffs to replead an
appropriately condensed version on or before July 20, 1981.
Defendants named in that repleading may then answer or otherwise
plead thereto on or before August 10, 1981.*fn6