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May 11, 1990

LYPHOMED, INC., Defendant

Suzanne B. Conlon, United States District Judge.

The opinion of the court was delivered by: CONLON


 Plaintiff Suneil Gurwara ("Gurwara") brought an action under federal securities laws against his former employer, LyphoMed, Inc. ("LyphoMed"). Gurwara also filed pendent state law claims for fraud and breach of contract against LyphoMed. LyphoMed moves to dismiss the federal claim pursuant to Fed.R.Civ.P. 12(b)(6). Assuming the federal claim is dismissed, LyphoMed moves to dismiss the remaining state claims for lack of subject matter jurisdiction.

 In deciding a motion to dismiss, the court must accept as true all well-pleaded factual allegations in the complaint and inferences reasonably drawn from them. Gomez v. Illinois Bd. of Educ., 811 F.2d 1030, 1039 (7th Cir. 1987). Dismissal is proper if it appears beyond doubt that the plaintiff could prove no set of facts in support of his claim that would entitle him to the relief requested. Illinois Health Care Assoc. v. Illinois Dep't of Public Health, 879 F.2d 286, 288 (7th Cir. 1989) citing Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957). Thus, the facts of this dispute are recited as alleged in Gurwara's complaint.

 Gurwara was employed by defendant LyphoMed in May 1985. At that time, Gurwara and LyphoMed entered an "Incentive and Non-Qualified Stock Option Agreement" that permitted Gurwara to purchase stock of LyphoMed ("the stock agreement"). The stock agreement gave Gurwara the option to purchase shares of LyphoMed stock at $ 19.13 per share. The stock agreement permitted Gurwara to purchase 6250 shares each year for a period of four years between May 6, 1986 and May 5, 1990. In the event that Gurwara was terminated, the stock agreement provided that within three months, Gurwara could purchase the full number of shares that he was entitled to purchase on the date of his termination. The stock agreement provided that if Gurwara became permanently disabled, within twelve months he could exercise his option to purchase the full number of shares he was entitled to purchase on the date of his disability.

 Gurwara exercised his option to purchase LyphoMed stock in each of the first two years covered under the stock agreement. In order for his third year option to vest, he was required to be employed and not permanently disabled as of May 6, 1988. Gurwara underwent surgery for a brain tumor in December 1986 and again in January 1987. From December 1986 to May 1987, Gurwara was on short term disability. In May 1987, he returned to work and received a full salary as a full-time employee until March 31, 1988.

 In the spring of 1988, Gurwara requested assistance to perform his job duties. LyphoMed allegedly offered Gurwara a less demanding position as director of pharmaceutical information in March 1988. Subsequently, Edward Khamis ("Khamis"), vice president of human resources of LyphoMed, proposed to Gurwara that Gurwara spend six months on short-term disability. Khamis suggested that after six months, Gurwara could go on long-term disability.

 In the spring of 1988, LyphoMed was involved in a class action lawsuit. Khamis told Gurwara that if Gurwara elected short-term disability effective April 1, 1988, he would still be required to provide LyphoMed with his full cooperation in the defense of the lawsuit. In addition, Khamis told Gurwara that if Gurwara went on short-term disability, he would receive partial salary from LyphoMed and use of a company car through August 31, 1988. On April 11, 1988, LyphoMed sent Gurwara a letter repeating the offer.

 On April 1, 1988, without informing Gurwara, LyphoMed terminated Gurwara or considered him permanently disabled. Consequently, Gurwara's third-year stock option did not vest. LyphoMed did not conduct an exit interview, obtain Gurwara's identification card or explain to Gurwara his employee benefits rights. LyphoMed customarily performed these tasks when terminating an employee. When Gurwara attempted to exercise his third option to purchase LyphoMed stock, LyphoMed informed him that he was ineligible to exercise the option because he was terminated as an employee prior to May 6, 1988.

 II. Gurwara's Claim Under Section 10(b) and Rule 10b-5

 In Count I of his complaint, Gurwara claims that LyphoMed violated Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) and Rule 10b-5, 17 CFR § 240.10b-5 (collectively "section 10(b)"). *fn1" Gurwara recounts that LyphoMed terminated him or placed him on permanent disability on April 1, 1988. He alleges that Lyphomed failed to inform him (1) that when he accepted short term disability, LyphoMed would consider him a terminated or permanently disabled employee; and (2) that the effect of Gurwara's action would be that the third option period would not vest. Gurwara alleges that LyphoMed misrepresented that Gurwara would continue as an employee of the company in order to secure his cooperation in the pending lawsuit. He maintains that LyphoMed sought to punish him for the lawsuits. Gurwara asserts that if not for LyphoMed's misrepresentations, he would not have gone on short-term disability prior to May 6, 1990, and he would have exercised his option to purchase LyphoMed stock.

 LyphoMed moves to dismiss Count I pursuant to Rule 12(b)(6) for failure to state a claim. In order to state a claim under Section 10(b), the plaintiff must establish that LyphoMed:

(1) made an untrue statement of material fact or omitted a material fact that rendered the statements made misleading, (2) in connection with a securities transaction, (3) with the intent to ...

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