United States District Court, S.D. New York
For Sidney Gordon, Lead Plaintiff: Brian C. Kerr, Brower Piven, A Professional Corporation, New York, NY; Charles J. Piven, PRO HAC VICE, Brower Piven, A Professional Corporation, Stevenson, MD; David A.P. Brower, Brower Piven, New York, NY; Edward F. Haber, Patrick J. Vallely, PRO HAC VICE, Michelle H. Blauner, Shapiro Haber & Urmy, L.L.P., Boston, MA; Ian J. McLoughlin, Shapiro Haber & Urmy LLP, Boston, MA; Richard Henry Weiss, Milberg LLP (NYC), New York, NY.
For Sonar Capital Management LLC, Neil Druker, Defendants: Mark Joseph Hyland, LEAD ATTORNEY, Julia Claire Spivack, Seward & Kissel LLP, New York, NY.
For Sonar Partners, LP, Sonar Institutional Fund, LP, Sonar Overseas Fund, LTD, Defendants: Mark Joseph Hyland, LEAD ATTORNEY, Seward & Kissel LLP, New York, NY.
OPINION AND ORDER
JED S. RAKOFF, United States District Judge.
Plaintiff Sidney Gordon brings this suit against defendants Sonar Capital Management (" Sonar" ), the hedge funds for which Sonar served as investment adviser (Sonar Partners, LP, Sonar Institutional Fund, LP, and Sonar Overseas Fund, Ltd. (collectively, the " Sonar Funds" )), and former Sonar President and CEO Neil Druker. Plaintiff alleges that the Sonar Defendants traded in securities issued by Sigma Designs, Inc. (" Sigma" ) while in possession of Sigma's material nonpublic information, in violation of the federal securities laws.
The Sonar Defendants moved for summary judgment on the ground, inter alia, that plaintiff had insufficient evidence that the Sonar Defendants knew or should have known that the allegedly material nonpublic information about Sigma was disclosed in breach of a fiduciary duty. The Court, by " bottom line" Order dated July 23, 2015, granted their motion on that ground. This Opinion and Order sets forth the reasons for that ruling and, as a consequence (as explained below), directs the entry of final judgment dismissing the Third Amended Complaint in its entirety.
The nature of plaintiff's allegations and the procedural history of this action are set forth in the Court's previous opinions in this case, familiarity with which is here presumed. See Gordon v. Sonar Capital Mgmt. LLC, No. 11-CV-9665, 92 F.Supp.3d 193, 2015 WL 1283636 (S.D.N.Y. Mar. 19, 2015); Gordon v. Sonar Capital Mgmt. LLC, No. 11-CV-9665, 2014 WL 3900560 (S.D.N.Y. Aug. 1, 2014); Gordon v. Sonar Capital Mgmt. LLC, 962 F.Supp.2d 525 (S.D.N.Y. 2013); Gordon v. Sonar Capital Mgmt. LLC, No. 11-CV-9665, 2012 WL 1193844 (S.D.N.Y. Apr. 9, 2012). In brief, plaintiff alleges that, from 2006 to 2008, former Sonar Managing Director Noah Freeman obtained nonpublic information regarding Sigma's advance quarterly revenue figures from a consultant named Tai Nguyen, who in turn obtained that information from a relative who worked at Sigma (the " Disloyal Sigma Employee" ). Plaintiff further alleges that Freeman then shared that information
with Druker, who caused the Sonar Funds to trade on it.
A court may grant summary judgment only " if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). In reviewing a motion for summary judgment, the court must " resolve all ambiguities and draw all factual inferences in favor of the nonmovant." Robinson v. Concentra Health Servs., Inc., 781 F.3d 42, 44 (2d Cir. 2015) (citation and internal quotation marks omitted).
Under the law of this Circuit, a remote tippee, in order to be held liable for securities fraud, must know that the original tipper disclosed market-sensitive information in breach of a fiduciary duty and received some personal benefit from the disclosure. See United States v. Newman, 773 F.3d 438, 450 (2d Cir. 2014); United States v. Whitman, 904 F.Supp.2d 363, 371 (S.D.N.Y. 2012), as corrected (Nov. 19, 2012), aff'd, 555 Fed.Appx. 98 (2d Cir. 2014). In a civil case such as this one, a plaintiff may satisfy the latter part of this requirement by proving that the defendant " knew or had reason to know" of the benefit to the tipper. S.E.C. v. Obus, 693 F.3d 276, 288 & n.2 (2d Cir. 2012); S.E.C. v. Jafar, No. 13-CV-4645, 2015 WL 3604228, at *4 & n.2 (S.D.N.Y. June 8, 2015). Moreover, the benefit may consist of giving a gift to a relative. Dirks v. S.E.C., 463 U.S. 646, 664, 103 S.Ct. 3255, 77 L.Ed.2d 911 (1983).
Defendants argue that plaintiff has no evidence that Nguyen's information came from a Disloyal Sigma Employee, no evidence of who any such person might have been (much less that he or she was Nguyen's relative), and no evidence that any person received any benefit from the disclosure of the information. They rely on Freeman's deposition testimony, in which he stated that Nguyen never told him who his contact at Sigma was, or even that he had such a contact, see Affidavit of Mark J. Hyland dated February 27, 2015 (" Hyland Aff." ) Ex. 2, 53; that he merely " surmised" that Nguyen's information came from a single contact and that he " guessed" that that contact worked at Sigma, id. at 320-24; that, regarding Nguyen's contact at Sigma, he " never knew who he was or what he did," id. at 51; that he did not know whether Nguyen had a relative who worked at Sigma, id. at 196; that he was " unaware" of any benefit received by any Sigma insider, id. at 51-52; and that he had " no idea" whether Nguyen obtained the Sigma information in an improper manner, id. at 214-15.
Defendants further argue that the only evidence in the record is contrary to the suggestion that the information was improperly disclosed. Although Nguyen was convicted of insider trading based on his trading on and sale to Sonar of inside information regarding a company called Abaxis -- information that Nguyen obtained from his sister, Thanh Ha Bao, an Abaxis employee -- he was never charged with any illegal activity relating to Sigma. See Hyland Aff. Ex. 4, at 6-7. Moreover, in connection with his sentencing on that ...