Opinion ID: 75506
Heading Depth: 2
Heading Rank: 2

Heading: The allegations against Metromedia.

Text: In order to state a Section 20(a) claim against Metromedia, the plaintiffs had to allege (1) that Roadmaster violated section 10(a) of the Exchange Act, (2) that Metromedia had the power to control the general business affairs of Roadmaster, and (3) that Metromedia “had the requisite power to directly or indirectly control or influence the specific corporate policy which resulted in primary liability.” See 84 F.3d at 396. As the district court correctly found, the plaintiffs failed to allege facts sufficient to satisfy any of the three prongs of this test. “The term control (including the terms controlling, controlled by and under common control with) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise.” 17 C.F.R. § 230.405. In attempting to allege that Metromedia controlled Roadmaster (1) generally and (2) specifically with respect to the alleged misrepresentations and omissions, the plaintiffs relied primarily on the facts that Metromedia owned 39% of Roadmaster’s stock and was a party to an agreement that guaranteed the election of Metromedia designees to four of Roadmaster’s nine 14 directorships.11 These facts, which proved only that Metromedia held a minority interest in Roadmaster, did not establish that Metromedia had the power to control the general business affairs of Roadmaster, nor that Metromedia had the power to control or influence the “specific corporate policy which resulted in” the alleged misconduct. As such, Metromedia could not be held liable as a controlling person of Roadmaster under Section 20(a), even if plaintiffs had alleged a primary violation of Section 10(b) against Roadmaster, which they have not.