Court Opinion

ID: 2963613
Source: CourtListenerOpinion
Date Created: 2015-09-21 21:13:00.685452+00
Date Added: 2024-06-11T15:00:30.547584
License: Public Domain

USCA1 Opinion

	

                            UNITED STATES COURT OF APPEALS
                                FOR THE FIRST CIRCUIT
                                 ____________________

          No. 94-1405

                                ESTATE OF JAIME SOLER,

                               Plaintiffs, Appellants,

                                          v.

                              JOAQUIN RODRIGUEZ, ET AL.,

                                Defendants, Appellees.

                                 ____________________

                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                           FOR THE DISTRICT OF PUERTO RICO

                    [Hon. Jose Antonio Fuste, U.S. District Judge]
                                              ___________________

                                 ____________________

                                        Before

                                Boudin, Circuit Judge,
                                        _____________

                           Campbell, Senior Circuit Judge,
                                     ____________________

                         and Boyle,1 Senior District Judge. 
                                     _____________________

                                 ____________________

               Pedro  A. Jimenez,  with  whom  Katarina  Stipec  Rubio  and
               _________________               _______________________
          Gonz lez  Oliver,  Correa  Calzada, Collazo  Salazar,  Herrero  &
          _________________________________________________________________
          Jim nez were on brief for appellants.
          _______
               Jorge  E.  P rez  D az,  with  whom  Jorge  I.  Peirats  and
               ______________________               __________________
          Pietrantoni Mendez &  Alvarez were on  brief for appellee  Centro
          _____________________________
          Medico Del Turabo, Inc. 
               Eli B. Arroyo  for appellee Universidad de  Ciencias Medicas
               _____________
          San Juan Bautista, Inc.
                                 ____________________

                                   August 15, 1995
                                 ____________________

                              
          ____________________

               1Of the District of Rhode Island, sitting by designation.

                      CAMPBELL,   Senior   Circuit   Judge.     In   this
                                  ________________________

            shareholder's  derivative  suit brought  on behalf  of Centro

            M dico del Turabo, Inc. ("CMT"), Plaintiffs-Appellants Ivette

            Perez Vda. de Soler, Marie Ivette Soler Perez, Jaime A. Soler

            Perez, and  Antonio Soler  Perez (as  representatives of  the

            Estate of  Dr. Jaime  Soler, or the  "Soler Estate")  and Dr.

            Jose A. Badillo appeal from the district  court's Opinion and

            Order and Order on  Reconsideration dismissing their verified

            complaint under Fed. R. Civ. P. 12(b)(6) for failure to state

            a claim upon which relief may  be granted.1  Estate of  Soler
                                                         ________________

            ex rel. Soler  v. Rodriguez, 847 F. Supp.  236 (D.P.R. 1994).
            _____________     _________

                                
            ____________________

            1.  In  its Opinion and  Order and Order  on Reconsideration,
            the district court said  it was dismissing the complaint  for
            failure to state  a claim under Rule 12(b)(6),  but stated in
            the judgment that  the complaint  was dismissed  for lack  of
            subject matter jurisdiction.  Where both federal jurisdiction
            and the  existence of a  federal claim turn upon  whether the
            complaint states a federal question, the preferable  practice
            is   to  assume  that  jurisdiction  exists  and  proceed  to
            determine  whether  the   claim  passes  muster   under  Rule
            12(b)(6).   See  Bell v.  Hood, 327  U.S. 678,  682-83 (1946)
                        ___  ____     ____
            (where the  merits of  the action  are  intertwined with  the
            issue  of jurisdiction, the federal claim should be dismissed
            for lack of subject matter  jurisdiction only if the claim is
            immaterial  and  made  solely for  the  purpose  of obtaining
            jurisdiction or if  the claim is clearly frivolous  or wholly
            insubstantial); Arroyo-Torres v. Ponce Fed. Bank, F.B.S., 918
                            _____________    _______________________
            F.2d  276, 280 (1st  Cir. 1990) (since  plaintiff's assertion
            that federal  law implied a  private right of action  was not
            frivolous, the district court had subject matter jurisdiction
            to determine whether or  not a claim existed; therefore,  the
            dismissal  entered by the district court, ostensibly for lack
            of  jurisdiction,   should  have  been  premised   upon  Rule
            12(b)(6)); see also 2A James W. Moore et al., Moore's Federal
                       ________                           _______________
            Practice   12.07[2.-1] (2nd ed.  1993).  However, "we are not
            ________
            bound by the label employed below," Carr v. Learner, 547 F.2d
                                                ____    _______
            135, 137 (1st Cir. 1976), and will treat the dismissal as one
            made pursuant to Rule 12(b)(6).

                                         -2-
                                          2

            The district court  held that appellants failed to  plead the

            "in connection with"  requirement of a cause  of action under

            Section  10(b)2 and  Rule 10b-5,3 but  rather alleged  only a

                                
            ____________________

            2.  Section 10(b) of the Securities Exchange  Act of 1934, 15
            U.S.C.   78j(b), states:

                      It  shall  be  unlawful  for any  person,
                      directly or indirectly, by the use of any
                      means  or  instrumentality  of interstate
                      commerce  or  of  the mails,  or  of  any
                      facility  of   any  national   securities
                      exchange . . . 
                      (b)  To use or employ, in connection with
                      the purchase  or  sale  of  any  security
                      registered  on   a  national   securities
                      exchange   or   any   security   not   so
                      registered, any manipulative or deceptive
                      device or contrivance in contravention of
                      such   rules  and   regulations  as   the
                      Commission may prescribe  as necessary or
                      appropriate in the public interest or for
                      the protection of investors.

            3.  Rule 10b-5, 17 C.F.R.   240.10b-5 states:

                      It shall  be  unlawful  for  any  person,
                      directly or indirectly, by the use of any
                      means  or  instrumentality  of interstate
                      commerce,  or of  the  mails  or  of  any
                      facility  of   any  national   securities
                      exchange,
                      (a) To  employ  any  device,  scheme,  or
                      artifice to defraud,
                      (b) To  make any  untrue  statement of  a
                      material  fact  or  to  omit to  state  a
                      material fact necessary  in order to make
                      the statements made, in the light  of the
                      circumstances under which they were made,
                      not misleading, or
                      (c) To  engage in  any act,  practice, or
                      course  of  business  which  operates  or
                      would operate as  a fraud or deceit  upon
                      any person,
                      in connection  with the purchase  or sale
                      of any security.

                                         -3-
                                          3

            case  of breach of fiduciary duty and corporate mismanagement

            under Puerto Rico law.  We reverse.

                                      I.  FACTS.
                                          _____

                      The  facts alleged  in  the complaint     extending

            every reasonable inference in plaintiffs' favor, see Coyne v.
                                                             ___ _____

            City of Somerville, 972 F.2d 440, 443 (1st Cir.  1992)    are
            __________________

            as  follows.     CMT  is a  private,  for-profit Puerto  Rico

            corporation  organized in 1978  to offer medical  services in

            the  eastern  central region  of  Puerto Rico.    Through its

            subsidiary, Turabo Medical Center Partnership,4 CMT  owns and

            operates  the Hospital  Interamericano  de Medicina  Avanzada

            ("HIMA"), a hospital located in Caguas, Puerto Rico.

                      The  individual   plaintiffs  are  the   widow  and

            children of Dr.  Jaime Soler, one of CMT's  founders, and Dr.

            Jos   Badillo,  the other  founder  of  CMT.   Prior  to  the

            disputed  sale  of securities  described  below,  Dr. Badillo

            owned  217,500 shares  of common  voting stock of  CMT, which

            constituted  16.81% of the  total 1,293,942 shares  of common

            voting stock of the company  then issued and outstanding.  In

            1990,  Dr. Soler  passed away,  leaving  his 435,000  shares,

            which constituted 33.62% of CMT's common voting stock, to the

            Soler Estate.   Appellants thus collectively owned  50.43% of

            CMT's common voting stock.

                                
            ____________________

            4.  Not a party to this suit.

                                         -4-
                                          4

                      Appellee Joaqu n Rodr guez  was originally hired by

            Drs. Soler and Badillo to  manage CMT and eventually became a

            minority shareholder as well as  the chairman of its board of

            directors.  The founders gave Rodr guez full  administrative,

            financial, and operational control over all of the affairs of

            CMT.   On November 14, 1991, Mrs. Soler replaced her deceased

            husband  on  the  board.    The  other directors  during  the

            relevant  periods were  appellant Dr.  Badillo and  appellees

            Juan  Chaves,  Carlos M.  Pi eiro,  and Dr.  Jos   J. Vargas-

            Cordero.   Rodr guez  was CMT's  president;  Dr. Badillo  its

            vice-president;  Chaves   its  secretary;  and   Pi eiro  its

            treasurer.  Appellee Fernando E. Agrait was an attorney hired

            by Rodr guez  to handle  the in-house  legal affairs  of CMT.

            Appellee  Luis  Garc a  Passalacqua   was  owner  of  Miramar

            Construction,  Inc., which had  a pending business  deal with

            CMT.

                      Appellees  Chaves  and   Vargas-Cordero  were  also

            respectively  the owner and  dean of appellee  Universidad de

            Ciencias M dicas San  Juan Bautista, Inc. ("UCMSJB"),  a non-

            profit company operating an independent school of medicine at

            HIMA.    Appellees  Rodr guez and  Pi eiro  were  trustees of

            UCMSJB.   UCMSJB  operated its  medical school  from a  space

            rented from CMT for  $1.00 per year.   Prior to the  disputed

            sale, UCMSJB  also owned  10,000 shares,  or 0.77%, of  CMT's

            common voting stock.

                                         -5-
                                          5

                      In 1987, CMT's shareholders authorized the issuance

            of 300,000 common  voting shares of CMT and  the placement of

            those  shares in a  public sale at $10  per share, subject to

            registration under the Blue Sky  laws of Puerto Rico, and for

            distribution  solely to residents of Puerto  Rico.  This sale

            was  not  successful; very  few  of  the  shares  were  sold.

            Sometime  between 1991 and  the fall of  1993, Rodr guez told

            Dr. Ramon Carlos, a physician with privileges at HIMA who had

            approached him to  purchase shares  in CMT,  that the  public

            sale had been closed and that CMT's shares were no longer for

            sale.   

                      During  all  of   1992  and  until   October  1993,

            shareholders  meetings  of  CMT   were  not  held,   because,

            according to  Rodr guez, the audited financial  statements of

            the  company were  not ready.   In 1993,  Mrs. Soler  and Dr.

            Badillo  [the  "plaintiff  directors"] decided  that  outside

            experts should  be hired to  analyze CMT's future  plans, and

            felt  that  no   corporate  assets  should  be   conveyed  or

            encumbered  until  this was  done  and  the  board was  fully

            informed.

                      Notwithstanding this  decision, Rodriguez  insisted

            upon the sale of surface  rights over HIMA's parking facility

            to Miramar  Construction for  the development  of a  doctor's

            office building.   Mrs. Soler opposed this sale  at a meeting

            of  CMT's board of  directors held on September  9, 1993.  At

                                         -6-
                                          6

            this same meeting,  Rodriguez reiterated a prior  request for

            approval of a three-year lease  to UCMSJB of land managed and

            partly owned by CMT.  Mrs. Soler and  Dr. Badillo opposed the

            lease because of the nominal yearly rent of $1.00, because no

            independent evaluation of the best  use of that land had ever

            been performed, and because no outside independent advice had

            ever  been obtained  as to  the financial  benefit to  CMT of

            having  UCMSJB's school of medicine, long unaccredited by the

            nationwide  accrediting  body,  affiliated  with  CMT.    The

            plaintiff  directors also felt  that the  transaction between

            CMT and UCMSJB,  which was effectively controlled  by Chaves,

            Rodr guez,   and  Dr.  Vargas,  needed  to  be  independently

            analyzed for conflicts of interest.

                      Unbeknownst to  the  plaintiff  directors,  to  the

            board of CMT, and to CMT as a corporate entity, Rodr guez and

            Chaves had designed a scheme  to deprive plaintiffs of  their

            historic majority ownership  in the company and  gain control

            of CMT for themselves.   The scheme consisted of the issuance

            by Rodr guez and Chaves, on September 16, 1993, without prior

            knowledge or approval  of the board of  directors, of 200,000

            shares of CMT  stock to UCMSJB at  a price of $10  per share,

            for a total price of $2,000,000.   UCMSJB made a down payment

            of $500,000, and agreed to  pay CMT the balance through eight

            promissory  notes in  the amount  of  $100,000 each,  payable

            consecutively  on August 1  and February 1  through February,

                                         -7-
                                          7

            1997, at  6% annual  interest, and a  promissory note  in the

            amount of $700,000 on  the same terms due on August 1, 1997.5

            These  notes  were secured  by  an assignment  of  a contract

            between  the  Department  of Health  of  the  Commonwealth of

            Puerto  Rico and  UCMSJB by  virtue  of which  UCMSJB was  to

            receive  monthly payments of $249,864.08.  This collateral is

            alleged to  have been  "fictitious" because  the contract  in

            question was supposedly non-assignable under Puerto Rico law.

            The purposes of the scheme were allegedly to,

                      a) secure control by Rodr guez and Chaves
                      and approval of the  lease with UCMSJB at
                      CMT's expense, b) to procure and  finance
                      a substantial  block of shares  to UCMSJB
                      at  a  wholly inadequate  price  and with
                      fictitious  collateral,  c)  to  entrench
                      management and validate  sweetheart deals
                      and/or   situations   of   conflicts   of
                      interest,  d)  to  dilute  and  eliminate
                      plaintiffs' majority ownership in CMT, e)
                      to  evict plaintiffs  from the  corporate
                      board, and f) to prevent the  appointment
                      of independent  outside directors  to the
                      company board at the annual shareholders'
                      meeting.

                      At  the next board  meeting on September  29, 1993,

            Rodr guez   again  insisted  that  the  three-year  lease  be

            approved at no  charge, ostensibly in order to  free up other

            space occupied  by the medical  school in the hospital.   The

            plaintiff  directors decided at  this point firmly  to oppose

                                
            ____________________

            5.  The verified complaint  states that the payments  were to
            be  made  on  a  yearly  basis  for  seven  years.   This  is
            contradicted by the  Agrait letter, infra and included in the
                                                _____
            complaint.   According to  the letter, payment  was to  be as
            described above.

                                         -8-
                                          8

            the lease  until  independent analysis  could  be done.    No

            mention was made  at this  meeting of the  sale of shares  to

            UCMSJB.

                      In  early  October  1993, the  plaintiff  directors

            noticed that certain  statements contained in the  minutes of

            the  September 29th  meeting were  inaccurate  or misleading.

            Specifically,  the minutes stated  that Mrs. Soler  had moved

            for  approval of  the minutes  of the September  9th meeting,

            which she had not done; reflected a motion made by Mrs. Soler

            and  Dr.  Badillo  setting  forth  certain  requirements  for

            consideration  of the  sale  of  surface  rights  to  Miramar

            Construction, but omitted the principal requirement that such

            sale  not be approved  until it was  independently determined

            that it  was in CMT's  best interest; and reflected  that Dr.

            Badillo had proposed  approval of the  lease to UCMSJB,  when

            both he and Mrs. Soler had strongly opposed such lease.

                      The  plaintiff directors decided  that the only way

            to  deal  with the  increasing conflicts  of interest  was to

            appoint  to CMT's board reputable and experienced independent

            outside directors at the  upcoming shareholders' meeting,  to

            be held  on October 28, 1993,  and to do so in  such a manner

            that  these outside directors would hold a determinative vote

            in case of  an impasse.  Dr. Badillo  also considered selling

            the  plaintiff shareholders'  majority block  as  a means  of

            ending the tense situation, but the Soler Estate decided that

                                         -9-
                                          9

            until such time as outside directors were appointed, it would

            not consider or  decide whether it wished to  sell its shares

            in CMT.

                      The plaintiff  directors formalized  their position

            in a letter  dated October 7, 1993, a copy of which was hand-

            delivered to the directors of CMT at a board  meeting held on

            that date.  The letter  stated their formal opposition,  both

            as directors and as majority shareholders, to the approval of

            the  lease  with   UCMSJB,  complained  of  the   absence  of

            information concerning the transaction, and demanded that the

            board not approve  the lease until such  information had been

            received and analyzed.   The board, controlled  by Rodr guez,

            nonetheless approved the  lease.  Again, no  mention was made

            of the sale of shares to UCMSJB.

                      Following  this  meeting, the  plaintiff  directors

            commenced  a  search   for  qualified  individuals  with   no

            financial ties  to CMT  who would agree  to serve  as outside

            directors.  Between October 10 and October 28, 1993, two such

            individuals  were located and agreed to serve.  The plaintiff

            directors intended at the  upcoming shareholders' meeting  to

            vote  for  the  reelection  of  Rodr guez,  Pi eiro,  Vargas-

            Cordero,  and themselves,  as  well as  the  two new  outside

            directors, and  to retain  Rodr guez as  president and  chief

            operating officer of  CMT.  It was their  intention to inform

            Rodr guez  of their plans  on the night  of the shareholders'

                                         -10-
                                          10

            meeting,  prior to  its  commencement.    However,  when  the

            plaintiff directors arrived at the meeting with their counsel

            and  the outside directors, Rodr guez informed them that they

            no longer had  a majority position in the  company, by virtue

            of the sale of shares to UCMSJB.6

                      Upon learning of this sale, the plaintiff directors

            walked  out of  the  shareholders'  meeting.    The  meeting,

            allegedly in the absence of a quorum, then removed Mrs. Soler

            and Dr. Badillo as  directors, and replaced them  with Garc a

            Passalacqua.   Rodr guez then  informed the newly constituted

            board of the sale to UCMSJB, and the sale was ratified.

                      Prior to the  shareholders' meeting, Rodr guez  had

            obtained  a letter from  CMT's inside counsel,  Agrait, dated

            October 11,  1993 ("the Agrait  letter"), to the  effect that

            the proposed sale  of stock to UCMSJB was  legal.  Plaintiffs

            contend that this letter was deliberately intended to conceal

            the  illegality of  the  sale  from  other  shareholders  and

            directors.  The letter first recited the details of the sale,

            as recounted above.   It then stated that the  sale was valid

            under  the  1987  shareholders'  resolution  authorizing  the

            issuance of 300,000 common voting  shares of CMT.  The letter

            concluded that since  not all of the 300,000  shares had been

                                
            ____________________

            6.  Following the sale to UCMSJB, there were 1,493,942 shares
            of  CMT common  voting stock  outstanding.   The  plaintiffs'
            652,500  shares  represented  43.68% of  the  total; UCMSJB's
            210,000  represented  14.06%,  with  the  remaining   631,442
            shares, or 42.27%, held by other shareholders.  

                                         -11-
                                          11

            sold, and since  the sale to UCMSJB  was a private sale  to a

            single purchaser  for part of  the balance of  the authorized

            but unsold shares, the sale had been implicitly authorized by

            the  shareholders in  1987,  and  no  public  disclosure  and

            registration  under the Blue  Sky laws were  required because

            the  sale was  not  part of  an  offering  to more  than  ten

            purchasers.

                      The complaint  also notes that although  the Agrait

            letter states that  the sale  was effected  on September  16,

            1993, Agrait  wrote another  letter on behalf  of CMT  to the

            Commissioner of Financial Institutions on September 27, 1993,

            inquiring whether a  private sale of  securities to a  single

            entity  was   subject  to  the  disclosure  and  registration

            requirements of Puerto Rico Blue  Sky laws.  The September 27

            latter stated that CMT was  "going to sell" 200,000 shares to

            one of its shareholders.

                       The complaint  also  alleges that  while  $10  per

            share  was an  adequate price in  1987, when CMT  was in dire

            financial straits and  on the verge of  bankruptcy, Rodr guez

            and Chaves knew  that it was no longer an adequate price.  In

            support  of  this  allegation,   the  complaint  states  that

            Rodr guez had hired  the services of Clark  Melvin Securities

            and Merrill Lynch to conduct an appraisal in  connection with

            the refinancing of  CMT's debt, which  was expected to  close

            shortly.  On the day of the  shareholders' meeting, Rodr guez

                                         -12-
                                          12

            and  Chaves were  told by  a Mr.  Montilla, pursuant  to that

            appraisal,  that the  market  value of  all  of CMT's  common

            voting  shares  upon  approval  of  the  financing  would  be

            approximately $24  million, or  at least  $18 per  share (not

            counting the 200,000 shares sold to UCMSJB).

                      Finally, the complaint states  that on November  3,

            1993,  the plaintiffs sent  a formal  demand letter  to CMT's

            management and "the illegally appointed directors,"  advising

            them that  any actions taken  by the new board  after October

            28,  1993  were  invalid and  illegal  and  demanding various

            remedial actions including the convening of an  extraordinary

            shareholders'  meeting.  After various negotiated delays, the

            defendants  responded  that   under  no  circumstances  would

            plaintiffs be  reinstated to the  board, and  offered to  buy

            plaintiffs' shares at  approximately $5 per share.  They also

            rejected plaintiffs' demand for an extraordinary shareholders

            meeting,  notwithstanding  the  requirement  in  Article  IV,

            Section 2 of the company by-laws that such meetings "shall be

            called by  the president"  at the request  of the  holders of

            more than 25% of the outstanding voting stock.

                                  II.  THIS LAWSUIT.
                                       ____________

                      Plaintiffs' complaint alleged, on  behalf of CMT, a

            violation of Section 10(b) of the Securities Exchange  Act of

            1934, 15  U.S.C.    78j(b) and Rule  10b-5 of  the Securities

            Exchange  Commission, 17 C.F.R.    240.10b-5.   The complaint

                                         -13-
                                          13

            also   sought,  under   the  district   court's  supplemental

            jurisdiction, see 28  U.S.C.   1367, rescission  of the stock
                          ___

            purchase agreement for  lack of corporate authority  and lack

            of  proper consideration, annulment  of the October  28, 1993

            board election,  and a new  election under  Puerto Rico  law.

            The complaint was  filed on November  24, 1993, and  included

            requests  for preliminary and permanent injunctions and for a

            temporary  restraining  order prohibiting  any  extraordinary

            disbursement  of  corporate  funds,  sale or  encumbrance  of

            corporate  assets,  and  the holding  of  board  of directors

            meetings during the next ten days.  The district court issued

            the temporary restraining order on the same day the complaint

            was filed and set a hearing on the preliminary injunction for

            December 3, 1993.  At a status conference held on December 2,

            1993, the  district court  consolidated consideration  of the

            preliminary and permanent  injunctions, and set a  trial date

            of February  7, 1994.  The temporary restraining order lapsed

            by its own terms on December 3, 1993.

                      CMT then filed a motion requesting realignment as a

            defendant, and  for dismissal  or summary  judgment.   UCMSJB

            moved   to  joint  CMT's  motion  for  dismissal  or  summary

            judgment.  Agrait  filed a motion for summary  judgment.  The

            remaining defendants filed a motion to dismiss.  The district

            court, in  an opinion  and order filed  on February  7, 1994,

            decided the motions based on the pleadings only, treating all

                                         -14-
                                          14

            motions as motions to dismiss under Fed. R. Civ. P. 12(b)(6).

            Finding that the alleged securities  fraud did not make out a

            claim under    10(b) of the Securities Exchange  Act of 1934,

            the  district court  dismissed  the federal  securities fraud

            claim  for failure  to  state a  claim under  Rule 12(b)(6).7

            Because  federal jurisdiction was based solely on that claim,

            the  court declined to retain jurisdiction over the remaining

            state law claims, and dismissed them without prejudice.

                      The plaintiffs filed  a motion for  reconsideration

            on February 21,  1994.  The district court  denied the motion

            in  a  written order  dated  March  24,  1994.   This  appeal

            followed.

                         III. THE DISTRICT COURT'S DECISION.
                              _____________________________

                      The  district  court  characterized  the  case   as

            presenting the question

                      whether a corporation can be said to have
                      been deceived in connection with the sale
                      of its  securities within the  meaning of
                      section 10(b) of  the Securities Exchange
                      Act of  1934, when the  president and the
                      secretary   authorized   the    sale   of
                      allegedly  previously-issued  stock  to a
                      shareholder,  without  approval   of  the
                      board   of   directors   or   the   other
                      shareholders.

            Estate of Soler,  847 F. Supp. at  238.  The court  said that
            _______________

            the "in connection with" element requires a showing "that the

            wrongful  conduct caused  the  plaintiff  to  engage  in  the

                                
            ____________________

            7.  See supra n.1.
                ___ _____

                                         -15-
                                          15

            disputed   sale  or  purchase  of  securities  and  that  the

            plaintiff's  injuries   are  directly  attributable   to  the

            deception and  to the  resulting  transaction."   Id. at  239
                                                              ___

            (citing  Wilson v. Ruffa & Hanover, P.C., 844 F.2d 81, 85 (2d
                     ______    _____________________

            Cir. 1988)).   If the alleged  fraud does not relate  to "the

            inherent  nature, characteristics  or value  of  the security

            and, therefore, could not have influenced the  plaintiff in a

            decision to sell or purchase the security," id. at 240, there
                                                        ___

            is no causal link to the disputed sale.

                      The  court then said  that the alleged  omission in

            this case was

                      the failure of the  defendants to reveal,
                      in  advance, the sale of the stock of CMT
                      to  UCMSJB.     Where  a  corporation  is
                      fraudulently induced into issuing its own
                      securities for less than their fair value
                      because of the misappropriation of inside
                      information  regarding  the   stock,  the
                      corporation  itself  is   injured  and  a
                      shareholder    derivative    action    is
                      appropriate.    Frankel v.  Slotkin,  984
                                      _______     _______
                      F.2d 1328, 1334 (2d Cir. 1993).  However,
                      the  sale in this case did not take place
                      because  the  corporation  was uninformed
                      about the nature of the stock, or because
                      defendants     misappropriated     inside
                      information  about   the  value   of  the
                      securities to  be sold.   We cannot  find
                      that the  concealment of the  sale itself
                      from   the    corporation   caused    the
                      corporation  to  enter   into  the  sale.
                      Rather than "in connection with" the sale
                      of  a  security, the  deception  here was
                      "of" the sale of a security.

            Id.  (footnote  omitted).    The  district  court  noted  the
            ___

            incongruity  of suggesting "that disclosure of a sale without

                                         -16-
                                          16

            full disclosure of some material  aspect of the sale would be

            a violation of  10b-5, while failing to disclose  the sale at

            all is  not  violation."   Id. at  241.   However, the  court
                                       ___

            concluded, Rule  10b-5 is not  meant to address  instances of

            corporate mismanagement.  "Rather, it was intended to promote

            full and fair disclosure to  those who buy or sell securities

            in  order to  ensure  that  investors are  able  to make  the

            correct decision as  to whether to carry out  the purchase or

            sale."  Id. (citing Santa Fe Indus., Inc. v. Green,  430 U.S.
                    ___         _____________________    _____

            462, 477-78 (1977);  O'Brien v. Continental Ill. Nat.  Bank &
                                 _______    _____________________________

            Trust Co.,593 F.2d54, 60(7th Cir.1979)). The courtthen noted,
            _________

                      While we  recognize that  the failure  to
                      reveal the sale at all necessarily  meant
                      that information about  the nature of the
                      shares  was also  concealed, because  the
                      company  did  not  "know"  that  it   was
                      selling  any  securities,  the  corporate
                      entity  cannot  be  said   to  have  been
                      deceived  as  to the  characteristics  or
                      value of the securities, or  to have made
                      any  decisions   based  on   a  lack   of
                      knowledge   about  the   nature  of   the
                      securities.

            Id.   The  court  then exercised  its  discretion to  dismiss
            ___

            without  prejudice  the  remaining   supplemental  state  law

            claims.

                      On reconsideration, the district court first noted,

            in response to the argument  that it had applied an incorrect

            subjective test of  causality, that it had not  held that CMT

            had not  relied on the  omitted information, but  rather that

            the  omission was  not of the  type Rule  10b-5 was  meant to

                                         -17-
                                          17

            remedy.  Id.   The court then discussed  plaintiffs' argument
                     ___

            that  it had  applied a  test of  awareness of  an investment

            decision applicable to  transactions between individuals  and

            entities,  not  to  transactions in  which  a  corporation is

            deceived  by  its  own  management.    The  court noted  that

            Goldberg  v.  Meridor, 567  F.2d  209 (2d  Cir.  1977), cert.
            ________      _______                                   _____

            denied, 434 U.S. 1069 (1978) and its progeny recognize that
            ______

                      even though some controlling directors or
                      shareholders  have complete  information,
                      they  can  conceal that  information  and
                      utilize  it  to  the  detriment  of   the
                      corporation, thus deceiving the corporate
                      entity in  violation of  Rule 10b-5.   We
                      agree that in the case before us,  taking
                      the facts  as alleged by  plaintiffs, the
                      corporation   was   deceived   when  some
                      members   of  the   board  of   directors
                      conducted  a  sale   of  corporate  stock
                      without informing the full  board and the
                      remaining shareholders.

            Id.  at 242.  Nevertheless,  the court reiterated its holding
            ___

            that the deception  here was not in connection  with the sale

            of securities  as required  for liability  under Rule  10b-5.

            Id.  The court distinguished Goldberg, saying,
            ___                          ________

                      In  Goldberg,  the  minority shareholders
                          ________
                      knew that the disputed transaction was to
                      take place,  but they were  deceived into
                      forgoing  a  possible   state  injunction
                      because   pertinent   facts   about   the
                      transaction   were   not    revealed   by
                      defendants.  Therefore, a decision by the
                      minority shareholders not to seek a state
                      injunction  was  completed   without  the
                      benefit of  complete information.   Here,
                      because the minority  shareholders had no
                      knowledge that the transaction was taking
                      place,  there   was  no   decision-making
                      process of either type.

                                         -18-
                                          18

            Id. (citation and footnote omitted).
            ___

                      The court also addressed plaintiffs' argument  that

            the   transaction  found  actionable   under  Rule  10b-5  in

            Superintendent of  Ins. v. Bankers  Life & Casualty  Co., 404
            _______________________    _____________________________

            U.S. 6 (1971), involved a deception unrelated to the inherent

            nature, characteristics or  value of the security.  The court

            in effect conceded  that this was so, saying  that in Bankers
                                                                  _______

            Life,
            ____

                      [t]he deception related to  the nature of
                      the  transaction  -- that  the  plaintiff
                      would be paying for its own securities --
                      and   not   to  the   existence   of  the
                      transactions.   We were not  intending to
                      create  a hard and  fast rule as  to what
                      should be deemed  "in connection with"  a
                      securities  transaction,  but  merely  to
                      point to  illustrative cases in  order to
                      demonstrate why the  instant action falls
                      outside the purview of Rule 10b-5.

            Estate  of Soler,  847 F.  Supp. at  242  (citation omitted).
            ________________

            Finally, the court compared this case with  Ketchum v. Green,
                                                        _______    _____

            557  F.2d 1022  (3d Cir.  1977), cert.  denied, 434  U.S. 940
                                             _____________

            (1977).   In that case, a  secret scheme was  hatched to oust

            certain  employees/shareholders,  which  had  the  additional

            result  of forcing  them to  sell  their shares  back to  the

            corporation.   The  court interpreted  the  Third Circuit  as

            holding  "that the  disputed transaction  was not  actionable

            under Rule  10b-5 because it  occurred in  connection with  a

            struggle  for  control  of the  corporation,  rather  than in

            connection  with the sale  of securities."  Id.  at 243.  The
                                                        ___

                                         -19-
                                          19

            court  concluded that the  present case similarly  involved a

            dispute  over control  of  CMT, and  thus  belonged in  state

            court.  Id.
                    ___

                                         IV.

                      A.  The Standard of Appellate Review.8

                 For purposes of  Fed. R. Civ. P. 12(b)(6),  a court must

            accept all well-pleaded facts as true and draw all reasonable

            inferences  in favor  of the  non-movant.   Washington  Legal
                                                        _________________

            Found. v. Massachusetts  Bar Found., 993  F.2d 962, 971  (1st
            ______    _________________________

            Cir. 1993) (citing  Coyne, 972 F.2d at 442-43).  "A court may
                                _____

            dismiss a complaint only if it is  clear that no relief could

            be  granted under  any  set  of facts  that  could be  proved

            consistent with the allegations."  Hishon v. King & Spalding,
                                               ______    _______________

                                
            ____________________

            8.  The district court ruled that plaintiffs  lacked standing
            to maintain a private action in their individual behalves for
            securities  fraud  under  Rule 10b-5,  because  they  did not
            purchase  or sell  the securities  involved  in the  disputed
            transaction,  citing Blue Chip  Stamps v. Manor  Drug Stores,
                                 _________________    __________________
            421 U.S. 723 (1975),  reh'g denied, 423 U.S. 884 (1975).  The
                                  ____________
            plaintiffs  have  not  appealed  from  this  decision.    The
            district  court  held,  however,  that  the   plaintiffs  had
            standing  to  bring a  derivative  action on  behalf  of CMT.
            Appellees challenge this ruling on the ground that an "action
            that is  not for the  benefit of the corporation,  but merely
            seeks to  enforce the rights  of one or more  shareholders is
            not  a derivative  action."   But as  we discuss,  infra, the
                                                               _____
            verified   complaint  adequately   alleges   injury  to   the
            corporation, stating that certain of its board members caused
            it  to   sell  its  own  stock,  without  disclosure  of  the
            transaction  to  other,  disinterested board  members,  hence
            without  disclosure to  all those  charged by  law to  act on
            behalf of the  corporation, at a price far  below the stock's
            actual  value,  with partial  payment  secured  by fictitious
            collateral.   That the plaintiffs  may also have been injured
            in a personal capacity is irrelevant to the question of their
            standing to bring a derivative suit for the corporation.

                                         -20-
                                          20

            467 U.S. 69, 73 (1984) (citing Conley v. Gibson, 355 U.S. 41,
                                           ______    ______

            45-46  (1957)).   An appellate  court is  not limited  to the

            legal grounds  relied upon  by  the district  court, but  may

            affirm on any independently sufficient grounds.  Willhauck v.
                                                             _________

            Halpin, 953 F.2d 689, 704 (1st Cir. 1991).
            ______

                    B.  Fraud Upon a Corporation by its Directors.

                      "To  prevail under  Rule 10b-5,  'a plaintiff  must

            prove, in connection with the purchase or sale of a security,

            that  the  defendant, with  scienter, falsely  represented or
                                                                       __

            omitted  to disclose a material fact upon which the plaintiff
            ____________________

            justifiably  relied.'"   Willco  Kuwait (Trading)  S.A.K.  v.
                                     ________________________________

            deSavary, 843 F.2d 618, 623 (1st Cir. 1988) (quoting  Kennedy
            ________                                              _______

            v. Josephthal & Co., Inc., 814 F.2d 798, 804 (1st Cir. 1987))
               ______________________

            (emphasis  supplied).  "The Act protects corporations as well

            as individuals who are sellers of a security."  Bankers Life,
                                                            ____________

            404  U.S. at 10.   We hold  that the district  court erred in

            ruling that the verified complaint  did not state a claim for

            CMT under   10(b) and Rule 10b-5.

                      Briefly  recounted,  the  scheme described  in  the

            complaint was allegedly hatched by CMT's president and by its

            secretary, both of whom were  also its directors.  The scheme

            was to cause CMT to issue and  sell 200,000 shares of earlier

            authorized  common voting  stock9  to  UCMSJB      a  medical

                                
            ____________________

            9.  The  issuance of  300,000 shares  of new  stock  had been
            authorized by the shareholders in 1987, six years earlier, at
            a  price of  $10 a  share, when  CMT was  allegedly close  to

                                         -21-
                                          21

            school of which  CMT's president was a trustee,  and of which

            CMT's  secretary was  the owner     for  the price  of  $10 a

            share.    The  issuance  and  sale  of  stock  was  allegedly

            accomplished  without  the  knowledge  or  approval  of   the

            plaintiff directors,  of the board  of directors, and  of the

            corporate  entity  itself.   UCMSJB  paid CMT  for  the stock

            largely in  notes  secured by  an  assignment of  a  contract

            between the Department of  Health of Puerto Rico and  UCMSJB.

            Two  of  CMT's  other  directors  were at  the  time  closely

            affiliated  with UCMSJB, while the two plaintiff directors   

            who between them controlled a bare majority of CMT's stock   

            were  unhappy with CMT's developing relationship with UCMSJB.

            As  a  result   of  the  deliberately  concealed   sale,  the

            proportion of CMT stock controlled by the plaintiff directors

            fell  below 50%, leaving UCMSJB  and those associated with it

            in practical control  of CMT.  The complaint  alleged that an

            objective  of selling  the  200,000 shares  of  CMT stock  to

            UCMSJB was to enable the latter to obtain a substantial block

            of CMT shares at a wholly inadequate price and to finance the

            stock  purchase with fictitious collateral.  According to the

            complaint, the  appraised market  value of  CMT's stock  when

            sold  to UCMSJB in  1993 was $18,  not $10, a  share; and the

            government contract constituting collateral for the notes was

                                
            ____________________

            bankruptcy.   Efforts to  sell the shares  at that  time were
            unavailing and, it might be inferred, were abandoned.

                                         -22-
                                          22

            non-assignable,  rendering the  collateral  fictitious.   The

            complaint further alleged that, although the stock was issued

            to UCMSJB on September 16,  1993, no mention was made of  the

            fact at the two board  of director meetings held in September

               one  held before and one after  the 16th.  By  the time of

            the October shareholders' meeting,  defendants    now  firmly

            in  control    revealed  the stock transaction  for the first

            time  to   the  plaintiff   directors  and   former  majority

            shareholders.  Plaintiffs were then ousted as directors.

                      It  is by now  well established that  a corporation

            has a claim under   10(b) if the corporation was defrauded in

            respect to the sale of its own securities by some or even all

            of its directors.  See, e.g., Goldberg, 567 F.2d at 215.   In
                               _________  ________

            Ruckle v. Roto  Am. Corp., 339 F.2d 24 (2d Cir. 1964), a case
            ______    _______________

            factually  close to the  present, a director  who represented

            more than half the stock entitled  to vote at the 1964 annual

            meeting  of the defendant  corporation successfully brought a

            derivative  action against his six fellow directors, who also

            constituted  the  corporation's   officers.    The  complaint

            alleged  that the  officers had  sought  to perpetuate  their

            control by, among  other ways, having  the board approve  the

            issuance  of some  75,000  treasury shares  that  were to  be

            resold  to  the president  or  voted  as  he directed.    The

            plaintiff alleged that the defendants had withheld the latest

            financial statements from the board, had arbitrarily ascribed

                                         -23-
                                          23

            a  $3  value   to  the  shares,  and  had   approved  several

            transactions involving the stock without disclosing pertinent

            facts  to  the  entire  board.    Id.  at 26.    Reversing  a
                                              ___

            dismissal, the Second Circuit held that it was possible under

            Rule 10b-5 for a corporation to be defrauded by a majority of

            its directors "or  even the entire board."   Id. at 29.   The
                                                         ___

            court went on to say,

                      If, in this case, the board defrauded the
                      corporation into issuing shares either to
                      its members or others, we can think of no
                      reason  to say  that  redress under  Rule
                      10B-5 [sic] is precluded, though it would
                      have  been  available   had  anyone  else
                      committed  the fraud.    There can  be no
                      more  effective  way  to  emasculate  the
                      policies  of the  federal securities  law
                      than to  deny  relief  solely  because  a
                      fraud was committed  by a director rather
                      than  an outsider.   Denial of  relief on
                      this  basis  would  surely  undercut  the
                      congressional  determination  to  prevent
                      the  public  distribution   of  worthless
                      securities.

            Id.
            ___

                      While Ruckle predated  the Supreme Court's decision
                            ______

            in Santa Fe,  nothing in Santa Fe and  its progeny invalidate
               ________              ________

            Ruckle's  relevant holding.  See,  e.g., Frankel, 984 F.2d at
            ______                       __________  _______

            1334 (citing  Ruckle  with approval);   see  also O'Neill  v.
                          ______                    _________ _______

            Maytag,   339  F.2d  764   (2d  Cir.  1964);   Schoenbaum  v.
            ______                                         __________

            Firstbrook,  405  F.2d 215  (2d Cir.  1968) (en  banc), cert.
            __________                                              _____

            denied  sub nom. Manley  v. Schoenbaum, 395  U.S. 906 (1969);
            ________________ ______     __________

            Santa Fe,  430 U.S. at  462; Goldberg,  567 F.2d at  209; see
            ________                     ________                     ___

                                         -24-
                                          24

            also  7 Louis  Loss &  Joel  Seligman, Securities  Regulation
            ____                                   ______________________

            3530-41 (3rd ed. 1991) (discussing this line of cases).

                      As  in Bankers  Life, it is  here alleged  that the
                             _____________

            corporation  on behalf  of which  suit has  been brought  was

            "injured  as an  investor through  a  deceptive device  which

            deprived it of  [adequate] compensation for  the sale of  its

            valuable  block  of  securities."    404 U.S.  at  10.    The

            deceptive device  was that  interested directors  of CMT  and

            other   parties   deliberately   omitted   to  inform   CMT's

            disinterested directors and shareholders, at a time when they

            might  still have  acted  to protect  CMT,  of an  impending,

            allegedly deleterious, sale of stock to UCMSJB.  CMT  "relied

            upon" this  omission to its  detriment, in that  its managers

            issued and  sold its stock  at an allegedly  inadequate price

            and without  adequate security, CMT having  been fraudulently

            deprived of  the judgment of  its full board of  directors on

            the  matter and,  in  particular, of  the  judgment of  those

            directors  and stockholders  who  were disinterested  and not

            personally  connected with UCMSJB.   Such facts  plainly make

            out a claim of defendants' knowing deception of and injury to

            CMT in connection with the sale of its stock.

                      The district  court recognized  that, "in  the case

            before us,  taking the facts  as alleged  by plaintiffs,  the

            corporation was deceived  when some members  of the board  of

            directors  conducted  a  sale  of  corporate  stock   without

                                         -25-
                                          25

            informing  the full  board and  the remaining  shareholders."

            Estate  of  Soler,  847 F.  Supp.  at  242.   The  court even
            _________________

            acknowledged that a   10(b) violation would have occurred had

            the directors  been told  of the proposed  sale of  stock but

            deceived  as to related material facts.   The court believed,

            however,  that no violation  occurred here, because  the sale

            itself was  concealed, resulting,  it said,  in no  decision-

            making process at all.  We  do not see the distinction.   The

            calculated  concealment  of the  sale itself,  thus depriving

            CMT's disinterested  directors  of the  opportunity  to  take

            steps to  prevent it before  it occurred, was an  omission to

            provide  essential  material   information  to  the   company

            regarding  the stock sale.  Indeed, accepting the allegations

            of the complaint  as true, it is a  reasonable inference that

            concealment   of  the  proposed  sale  from  CMT's  board  of

            directors  was essential to  the success of  the fraud, since

            the  plaintiff  directors  controlled  a  majority  of  CMT's

            outstanding  shares and would  doubtless have acted  to block

            the sale had they known.

                      We see  no merit  in the  district court's  analogy

            between this case  and Santa Fe.  In Santa Fe, acting without
                                   ________      ________

            fraud   or  concealment,   a  controlling   company  utilized

            Delaware's  "short  form merger"  statute  to  force minority

            stockholders in a subsidiary to  sell back their shares.  The

            latter  sued under    10(b) asserting  a breach  of fiduciary

                                         -26-
                                          26

            duty.   Noting the  absence of a  "manipulative or  deceptive

            device," the Supreme Court  held that   10(b) is not meant to

            remedy  corporate mismanagement, but  rather to  promote full

            disclosure to those who buy or sell securities.  The Court in

            Santa Fe  nowhere suggested  that a  deliberate stock  fraud,
            ________

            involving the  calculated omission  by personally  interested

            directors  to tell  other  directors  that  the  company  was

            selling  its  treasury  stock at  a  below  market  price and

            without adequate security, was beyond the reach of   10(b).

                      The allegations  here are  precisely of  a lack  of

            full disclosure to  CMT, the seller of the  securities.  They

            go  beyond  mismanagement to  the  calculated and  deliberate

            concealment, by interested directors,  of information that  a

            substantial block of the company's stock was being sold at an

            improperly  low  price  to  another  company  with  whom  the

            interested   directors  were  linked.    The  sale  of  CMT's

            securities,  and the  price  and  terms  of  the  sale,  were

            deliberately withheld to prevent the disinterested members of

            CMT's  board  of  directors, who  were  also  its controlling

            shareholders, from taking action prior to the completed sale.

            Hence those  sharing in  the legal  responsibility to  manage

            CMT's affairs were kept in the dark until the time had passed

            when  they  might   still  have  acted  to   safeguard  CMT's

            interests.   As there  was no "full  and fair  disclosure" to

            those legally empowered to act for the corporation, there was

                                         -27-
                                          27

            no  full and  fair  disclosure  to CMT  itself.   Unlike  the

            situation in Santa Fe, the  facts alleged go well beyond mere
                         ________

            corporate   mismanagement  "in  which   the  essence  of  the

            complaint is  that shareholders  were treated  unfairly by  a

            fiduciary."  430 U.S. at 477.  

                      Appellees  contend  that   the  verified  complaint

            alleges no more than violations  of state law, such as breach

            of fiduciary  duty, and that  therefore this case  falls into

            the "exception" to   10(b) liability created by Bankers Life.
                                                            ____________

            We  do not  agree.   That  state causes  of  action are  also

            available  to the  plaintiff does  not mean  that a  right of

            action will not lie  under   10(b).   "Section 10(b) must  be

            read  flexibly,  not  technically and  restrictively.   Since

            there was a 'sale' of a security and since fraud was used 'in

            connection with' it, there is redress under   10(b), whatever

            might be  available as  a remedy under  state law."   Bankers
                                                                  _______

            Life,  404 U.S.  at  12.   The  statement in  that case  that
            ____

            "[C]ongress by   10(b) did not  seek to regulate transactions

            which   constitute   no    more   than   internal   corporate
                                 _________________

            mismanagement,"  id. (emphasis  added),  means  only  that  a
                             ___

            breach   of   fiduciary   duty,   "without   any   deception,

            misrepresentation, or  nondisclosure," Santa Fe, 430  U.S. at
                                                   ________

            476,  does not violate   10(b).   Where corporate fiduciaries

            deceive  other board members  and stockholders by withholding

            key  information pertinent to  the corporation's sale  of its

                                         -28-
                                          28

            own  securities, the corporation  may have redress  through  

            10(b).

                      In dismissing the corporation's   10(b)  claim, the

            district  court  also  held  that  the  defendants'   alleged

            deception here was not sufficiently linked causally to a sale

            of   securities.    The  court   cited  to  cases  where  the

            misrepresentations  or  omissions  "did  not  relate  to  the

            inherent nature,  characteristics or value of  the security."

            See, e.g., Chemical  Bank v. Arthur Anderson &  Co., 726 F.2d
            _________  ______________    ______________________

            930  (2d Cir.),  cert. denied,  469  U.S. 884  (1984).   From
                             ____________

            these, the court reasoned that  simply omitting to tell CMT's

            directors and  majority shareholders of the fact  of the sale

            of CMT's  authorized stock  was different  from feeding  them

            false information  about the  specifics of the  sale.   In so

            reasoning,  the court  sought to  distinguish  cases such  as

            Bankers Life, 404 U.S. at 6,  Goldberg, 567 F.2d at 209, 219-
            ____________                  ________

            20, and  Frankel v.  Slotkin, 984 F.2d  1328 (2d  Cir. 1993).
                     _______     _______

            The short  answer, we  think, is that  these cases  cannot be

            distinguished.   The district court asserts that "the sale in

            this  case did  not take  place because  the corporation  was

            uninformed about the nature of  the stock."  Estate of Soler,
                                                         _______________

            847 F.  Supp. at   240.   Yet the  complaint alleges  that an

            appraisal of the  stock indicated that it was  worth $18, not

            $10, a share.   Had the board of  directors been so  advised,

            and had it  been told of other  aspects of the sale  (such as

                                         -29-
                                          29

            the alleged fictitious security), it might not have agreed to

            the sale, and, in any  case, the minority directors (who were

            majority shareholders) might have been able to take action to

            block the sale.

                      Nor do  we agree that  this case  is controlled  by

            Ketchum v.  Green, 557 F.2d  1022 (3d  Cir. 1977).   In  that
            _______     _____

            case, the Third Circuit wrote:

                      Upon review  of the stipulation  of facts
                      and the record  of the proceedings before
                      the district court, it becomes clear that
                      the  case at  hand  involved little  more
                      than   allegations   pertaining   to   an
                      internal  corporate  conflict.   Although
                      the  complaint  seemingly   stresses  the
                      importance  of   the  relinquishment   of
                      plaintiffs'   shares   under   the  stock
                      retirement plan, the  factual stipulation
                      and  other  segments  of the  record  are
                      largely  silent  on  this   point.    For
                      example,  it is  only  in the  concluding
                      paragraphs of the  stipulation that there
                      is  any mention  of  the  forced sale  of
                      securities.  It thus is manifest that the
                      essence of the plaintiffs' claim concerns
                      their dismissal as officers of Babb, Inc.

            557 F.2d at 1027 (footnote omitted).

                      The  alleged  fraud  in  Ketchum  was   defendants'
                                               _______

            failure to reveal  their intentions to oppose  the reelection

            of   the  plaintiffs  as  officers.    While  termination  of

            plaintiffs  as corporate  employees  would trigger  a  by-law

            forcing them to sell their stock, the Third Circuit concluded

            that    10(b)  did not  apply as  the  essence of  the relief

            sought  was directed  against  termination  of plaintiffs  as

            officers, not  to the sale  of securities.  In  contrast with

                                         -30-
                                          30

            Ketchum, the  stock sale  to UCMSJB is  central to  the fraud
            _______

            detailed  in the complaint here.  We  see no basis in Ketchum
                                                                  _______

            from  which to  hold  that  the present  scheme  was not  "in

            connection  with"  the sale  of  a  security, as  Rule  10b-5

            requires.

                      We  have  considered  appellees'  other  arguments,

            including  those related  to the  adequacy  of the  complaint

            under  Fed. R.  Civ. P.  9(b), and  find them  to be  without

            merit.  We hold that the complaint  in this case, viewed in a

            light most  favorable to  the plaintiffs, states  a cause  of

            action under   10(b)  and Rule 10b-5.  Of course,  nothing we

            say is meant  to relieve appellants of their  burden of proof

            as to  the matters alleged  in the complaint, nor  to suggest

            that we accept those matters as necessarily being complete or

            true.10

                                
            ____________________

            10.  Appellees Agrait, Pi eiro, and Vargas-Cordero argue that
            the  verified  complaint  alleges only  that  they  aided and
            abetted the sale of stock to UCMSJB.   They cite Central Bank
                                                             ____________
            v.  First  Interstate Bank,  114 S.  Ct. 1439  (1994) (issued
                ______________________
            during the  pendency  of  this  appeal), which  held  that  a
            private plaintiff could  not maintain an aiding  and abetting
            suit under    10(b) and  Rule 10b-5.  Appellee  UCMSJB argues
            that it was  under no duty  to inform  the appellants of  its
            purchase of CMT's  stock, citing Chiarella v.  United States,
                                             _________     _____________
            445   U.S.  222,  234-35  (1980)  ("Section  10(b)  is  aptly
            described as a catchall  provision, but what it catches  must
            be  fraud.    When  an  allegation of  fraud  is  based  upon
            nondisclosure,  there  can  be  no  fraud absent  a  duty  to
            speak."), and Taylor v. First  Union Corp., 857 F.2d 240 (4th
                          ______    __________________
            Cir.  1988).   Because we  now  reverse the  district court's
            judgment  dismissing  appellants' complaint,  we  think these
            issues are  best left in  the first instance to  the district
            court.

                                         -31-
                                          31

                      C.  Conclusion.

                      We reverse the district court's judgment dismissing

            the complaint in this case for failure to  state a claim upon

            which  relief  may   be  granted,  and  remand   for  further

            proceedings consistent with this opinion.

                      Reversed and remanded.
                      _____________________

                                         -32-
                                          32