Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

SEGEN v. WESTCLIFF CAPITAL MANAGEMENT

January 20, 2004.

LEON S. SEGEN, derivatively on behalf of KFx Inc., Plaintiff, -against- WESTCLIFF CAPITAL MANAGEMENT, LLC, et al., Defendants


The opinion of the court was delivered by: WILLIAM PAULEY, District Judge

MEMORANDUM AND ORDER

In this shareholder derivative action, plaintiff Leon S. Segen, on behalf of KFx Inc. ("KFx"), seeks disgorgement of $9 million in alleged short-swing profits realized by two groups of insiders pursuant to Rule 16b-6(c)(2) of the Securities Exchange Act of 1934 (the "Exchange Act"), 17 C.F.R. § 240.16b-6. Currently before this Court are defendants' motions for summary judgment on the grounds that they have settled with KFx for the maximum possible recovery under Rule 16b-6(c)(2). Defendants assert that the settlements vitiate an essential element of plaintiff's claim, i.e., damages, and establish an absolute affirmative defense. For the reasons set forth below, defendants' motions are granted. Page 2

  BACKGROUND

  This action arises from a series of private placements of KFx securities, beginning on March 28, 2002, through which two distinct groups of defendants, the "Westcliff Defendants"*fn1 and the "Ritchie Defendants,"*fn2 ended up owning more than ten percent of the outstanding shares of KFx. As a result, defendants were subject to various "insider"*fn3 restrictions under Section 16 of the Exchange Act, 15 U.S.C. § 78p, including the "short-swing" profit prohibition in Section 16(b). A brief summary of the relevant transactions follows. Page 3

 I. The Westcliff Transactions

  Beginning on March 28, 2002, various constituent members of the Westcliff Defendants entered into five private placement transactions with KFx, and also purchased KFx common stock on the open market (collectively, the "Westcliff Transactions"). Prior to that date, the Westcliff Defendants owned approximately 0.36% of KFx's outstanding stock. (Spencer Decl. ¶ 3, Ex. B.)

  On March 28, 2002, members of the Westcliff Defendants acquired certain securities from KFx, including common stock, warrants and put options, as well as options to purchase additional common stock and warrants. (Spencer Decl. ¶¶ 5-6, Exs. B-E.) In addition, KFx received a call option to repurchase the shares of common stock sold to the Westcliff Defendants in the transaction. (Spencer Decl. ¶¶ 5-6, Exs. B-E.)*fn4

  On April 30, 2002, members of the Westcliff Defendants exercised their March 28 common stock and warrant options to acquire additional common stock and warrants from KFx, and were granted additional put options, as well as options to purchase common stock and warrants. (Spencer Decl. ¶¶ 7-8, Exs. F-I.) In addition, the call option granted to KFx on March 28 expired and Page 4 terminated pursuant to its terms. (Spencer Decl. 1 7, Ex. C.) The price of KFx common stock at the time of the April 30 transaction was $2.45 per share. (Declaration of Jahan P. Raissi, dated June 30, 2003 ("Raissi Decl.") SI 3, Ex. A.)

  On July 1, 2002, members of the Westcliff Defendants exercised some of the common stock and warrant options they were granted on April 30 in order to acquire additional common stock and warrants from KFx, and were granted additional put options. (Spencer Decl. SISI 9-10, Exs. J-M.) The price of KFx common stock at the time of the July 1 transaction was $2.50 per share. (Raissi Decl. SI 4, Ex. A.)

  On July 19, 2002, members of the Westcliff Defendants again acquired common stock, warrants and put options from KFx, as well as options to purchase additional common stock and warrants. (Spencer Decl. ¶¶ 11-12, Exs. N-R.) The price of KFx common stock at the time of the July 19 transaction was $2.45 per share. (Raissi Decl. ¶ 5, Ex. A.)

  On August 21, 2002, two Westcliff Defendants exercised their July 19 options to acquire common stock, warrants, and additional put options from KFx. (Spencer Decl. ¶¶ 13-14, Exs. S-V.) The price of KFx common stock at the time of the August 21 transaction was $2.35 per share. (Raissi Decl. ¶ 6, Ex. A.)

  On November 6, 2002, and again on November 12, 2002, certain Westcliff Defendants purchased KFx common stock in the Page 5 open market at between $1.95 and $2.24 per share. (Spencer Decl. ¶¶ 15-18.)

  As of the date of their motion, none of the Westcliff Defendants had purchased any additional KFx securities, sold any KFx stock, or exercised any put options. (Spencer Decl. ¶ 19.) Indeed, the Westcliff Defendants' put options were cancelled on December 19, 2002, for no value. (Spencer Decl. ¶ 19, Ex. W.)

 II. The Ritchie Transactions

  Contemporaneous with the Westcliff Transactions, various constituent members of the the Ritchie Defendants entered into four private placement transactions with KFx (collectively, the "Ritchie Transactions"). Prior to March 28, 2002, the Ritchie Defendants held no KFx stock. (Affidavit of Mark Morris, dated June 30, 2003 ("Morris Aff.") ¶ 2.)

  On March 28, 2002, members of the Ritchie Defendants acquired from KFx certain securities, including common stock, warrants and put options, as well as options to purchase additional common stock and warrants. (Morris Aff. ¶¶ 3-5; Spencer Decl. Exs. B-E.)

  On April 30, 2002, members of the Ritchie Defendants acquired from KFx additional shares of common stock, warrants, and put options, as well as options to purchase more common stock and warrants. (Morris Aff. ¶¶ 6-8; Spencer Decl. Exs. F-I.) The Page 6 price of KFx common stock at the ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.