Appeal from a judgment of the United States District Court for the Southern District of New York (Denise L. Cote, Judge), awarding to plaintiff, suing on behalf of an issuer of securities, the short-swing profits realized by defendants from trading in the issuer's stock in violation of Section 16(b) of the Securities Exchange Act of 1934, see 15 U.S.C. § 78p(b).
The opinion of the court was delivered by: Reena Raggi, Circuit Judge:
Donoghue v. Bulldog Investors Gen. P'ship
Before: POOLER, RAGGI, and LYNCH, Circuit Judges.
Defendants challenge plaintiff's constitutional standing to maintain this action, arguing that the proscribed trading caused no actual injury to the issuer as required to establish a genuine case or controversy.
Defendants Bulldog Investors General Partnership and principal Phillip Goldstein (collectively, "Bulldog") appeal from a judgment entered on March 31, 2011, by the United States District Court for the Southern District of New York (Denise L. Cote, Judge), in favor of plaintiff Deborah Donoghue suing on behalf of Invesco High Yield Investments Fund, Inc. ("Invesco"). The judgment awards plaintiff $85,491.00, representing profits realized by Bulldog from "short-swing" trading in Invesco common shares in violation of Section 16(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), see 15 U.S.C. § 78p(b) ("§ 16(b)"). Bulldog argues that the judgment must be vacated for lack of standing because plaintiff failed to demonstrate that the proscribed short-swing trading caused Invesco actual injury as necessary to satisfy the case-or-controversy requirement of Article III of the Constitution.*fn1 Specifically, although Bulldog concedes that § 16(b) prohibited it, as the beneficial owner of more than 10% of Invesco's common stock, from engaging in any short-swing trading, it submits that in the absence of further wrongdoing, plaintiff cannot claim any cognizable injury resulting from that trading. We disagree and, therefore, affirm the judgment.
The facts relevant to this disgorgement action are straightforward and largely undisputed. During July 2008, Bulldog filed a beneficial ownership report on Schedule 13D with the Securities and Exchange Commission, reporting the hedge fund's ownership of nearly two million shares, comprising almost 15%, of the common stock of Invesco, a diversified closed-end management investment company.*fn2 In the publicly available Schedule 13D, Bulldog characterized its acquisitive purpose to include "'consider[ing] whether to take actions intended to afford all shareholders an opportunity to realize net asset value for their shares,'" which "'may include submitting a shareholder proposal, seeking representation on [Invesco's] board of directors and conducting a tender offer to acquire additional shares.'"
Compl. ¶ 15 (quoting Schedule 13D). To this end, Bulldog allegedly has attempted on several occasions to make demands upon Invesco's management and to persuade other shareholders to vote in opposition to management proposals. See id. ¶ 17.
Between November 2009 and March 2010, while continuing beneficially to own more than 10% of Invesco's outstanding common stock, Bulldog purchased and then sold 200,000 additional Invesco shares on the open market, realizing a profit of $85,491.00. Section 16(b) effectively prohibits such short-swing trading by a 10% beneficial owner of an issuer's equity securities, by providing that the realized short-swing profits "shall inure to and be recoverable by the issuer." 15 U.S.C. § 78p(b). Donoghue, an Invesco shareholder,
requested that Invesco sue Bulldog for violating § 16(b) and when, after 60 days, the company failed to take such action, Donoghue herself commenced this suit for disgorgement in April 2010. See id. (setting forth demand requirement and waiting period before shareholder may instigate § 16(b) lawsuit).
Bulldog moved to dismiss the complaint pursuant to Fed. R. Civ. P. 12(b)(1) for lack of constitutional standing, maintaining that plaintiff failed to allege any actual injury to Invesco from Bulldog's short-swing trades. The district court denied Bulldog's motion, relying on the language of § 16(b), which affords the issuer a legally protected interest in proscribed short-swing profits, and Gollust v. Mendell, 501 U.S. 115, 118 (1991), which holds that a shareholder plaintiff's ongoing financial interest in recovering short-swing profits pursuant to § 16(b) is sufficient to satisfy the injury-in-fact requirement of Article III as to that shareholder. See Donoghue v. Morgan Stanley High Yield Fund, No. 10 Civ. 3131 (DLC), 2010 WL 2143664, at *1-2. (S.D.N.Y. May 27, 2010). Following this denial, ...