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Andrew E. Roth, Derivatively On Behalf of Leap Wireless International v. the Goldman Sachs Group

June 5, 2012

ANDREW E. ROTH, DERIVATIVELY ON BEHALF OF LEAP WIRELESS INTERNATIONAL, INC.,
PLAINTIFF,
v.
THE GOLDMAN SACHS GROUP, INC., GOLDMAN, SACHS & CO., AND LEAP WIRELESS INTERNATIONAL, INC., DEFENDANTS.



The opinion of the court was delivered by: J. Paul Oetken, District Judge:

MEMORANDUM OPINION AND ORDER

Plaintiff Andrew E. Roth brings this action, derivatively on behalf of Leap Wireless International, Inc. ("Leap Wireless" or the "Company") against The Goldman Sachs Group, Inc. and Goldman, Sachs & Co. (collectively, the "Goldman Defendants" or "Goldman"), and Leap Wireless as nominal defendant, under Section 16(b) of the Securities Exchange Act (the "Exchange Act"), 15 U.S.C. § 78p(b) ("Section 16(b)").

Currently before the Court are motions by Goldman and Leap Wireless to dismiss the complaint for failure to state a claim upon which relief can be granted pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. (Dkt. Nos. 13 and 18.) For the reasons that follow, the motions to dismiss the complaint are granted.

I. Background

The following facts are drawn from the allegations in the Complaint, which are presumed true for the purpose of this motion. The Complaint also incorporates by reference particular Securities and Exchange Commission ("SEC") filings by Goldman, and those documents will be considered as well. See Chambers v. Time Warner, Inc., 282 F.3d 152-53 (2d Cir. 2002) ("[T]he complaint is deemed to include any written instrument attached to it as an exhibit or any statements or documents incorporated in it by reference." (citation omitted)).

A. The Parties

Plaintiff is an owner of common stock of Leap Wireless. Leap Wireless is a Delaware corporation with its principal place of business in San Diego, California.

The Goldman Sachs Group, Inc. is a Delaware Corporation with its principal place of business in New York, New York. Goldman, Sachs & Co. is a wholly owned subsidiary of the Goldman Sachs Group, Inc.

B. The Transactions

At certain times relevant to this case, Goldman owned greater than 10% of the shares of a particular class of Leap Wireless common stock. This subjected Goldman to the reporting and disgorgement requirements of Section 16 of the Exchange Act.*fn1

In particular, Goldman's ownership stake rose above 10% as a result of purchases of Leap Wireless securities on September 30, 2009. On October 2, 2009, Goldman disposed of a sufficient number of Leap Wireless shares to bring its ownership stake below 10%.

On September 30, 2009, during the time in which Goldman owned more than 10% of the shares of Leap Wireless common stock, it wrote 32,000 short call options covering 3.2 million shares of Leap Wireless stock, exercisable at $39 per share, with an expiration date of January 16, 2010 (the "Options"). The Options were sold for $0.33 per share, for a total of $1,056,000.*fn2

On October 6, 2009, Goldman advised Leap Wireless by letter that it had generated certain profits from purchases and sales of Leap Wireless securities during the period in which it owned more than 10% of Leap Wireless's common stock. Pursuant to Section 16(b), Goldman voluntarily offered to disgorge these profits, which totaled approximately $203,000. This amount did not include any profits garnered by Goldman as a result of the sale and expiration of the Options.

C. Plaintiff's Demand

On or about June 14, 2011, Plaintiff made demand upon Leap Wireless to commence a lawsuit pursuant to Section 16(b) to disgorge the profits earned by Goldman from the sale and expiration of the Options. Leap Wireless's counsel informed Plaintiff by letter that the Company had settled claims relating to Goldman's profits during the relevant period for the sum of $203,000 and that the Company "considers the matter closed." (Complaint, Dkt. No. 1, ¶ 17.)

On July 13, 2011, Plaintiff filed this action. On October 19, 2011, the Goldman Defendants filed a motion to dismiss the complaint for failure to state a claim upon which relief can be granted pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. (Dkt. No. 13.) Leap Wireless separately also moved to dismiss the complaint. (Dkt. No. 18.) Leap Wireless submitted a one-page memorandum of law stating that the Company "joins in each basis of the Goldman Defendants' motion to dismiss." (Memorandum ...


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