United States District Court, S.D. New York
OPINION & ORDER
ABRAMS, United States District Judge.
Larry Morrison brings this action under Section 16(b) of the
Securities Exchange Act of 1934 (the "Exchange
Act") against Defendants Eminence Capital, John Doe, and
Tailored Brands, Inc. ("Tailored Brands").
Defendants now move for dismissal under Federal Rules of
Civil Procedure 9(b), 12(b)(1), and 12(b)(6). Because
Plaintiff has failed to state a claim under Section 16(b),
the Court grants Defendants' motion and dismisses the
and Eminence Capital are former shareholders of The Men's
Wearhouse, Inc. ("Men's Wearhouse"), a retailer
specializing in menswear. See Am. Compl.
¶¶ 2, 3, 12, 17, 29-33, Ex. A. On September 8,
2013, Jos. A. Bank Clothiers, Inc. ("JOSB"), one of
Men's Wearhouse's competitors, publicly expressed an
interest in acquiring Men's Wearhouse at a price of $48
per share. Id. ¶¶ 10, 17. Men's
Wearhouse rejected JOSB's proposal as inadequate on
October 9, 2013. Id. ¶ 11. On November 7, 2013,
Eminence Capital filed a Schedule 13D with the Securities and
Exchange Commission (the "SEC"), which, among other
things, disclosed Eminence Capital's status as the
beneficial owner of 4, 684, 200 shares of Men's
Wearhouse's common stock-roughly 9.8% of the shares
outstanding at the time. Id. ¶ 12(a). The
Schedule 13D also disclosed that Eminence Capital had sent a
letter to the board of directors of Men's Wearhouse (the
"MW Board") expressing disappointment with the MW
Board's response to JOSB's proposal and exhorting the
MW Board to enter into a "dialogue" with JOSB
regarding a possible merger. Id. ¶ 12(a)-(b).
On November 15, 2013, JOSB announced that it was terminating
its offer to purchase Men's Wearhouse. Id.
Capital continued to campaign for a merger and pressure the
MW Board. On November 15, 2013, Eminence Capital announced
that it had filed a preliminary solicitation statement (the
"Proxy Solicitation") with the SEC seeking to call
a special meeting of Men's Wearhouse shareholders to vote
on bylaw amendments that would allow shareholders to remove
directors without cause before the next annual shareholder
meeting. Id. ¶ 14. On November 20, 2013,
Eminence Capital announced the release of a presentation that
purported to describe "why [the MW Board] should engage
in merger discussions with [JOSB]." Id. ¶
15. During the same period, Eminence Capital also appears to
have made a demand to inspect Men's Wearhouse's
stockholder list and books and records. See Id.
Board eventually acquiesced and tendered an offer to purchase
JOSB at a price of $55 per share on November 26, 2013.
Id. ¶ 18. JOSB rejected this initial bid and,
in response, Men's Wearhouse raised its bid to $57.50 per
share on January 6, 2014. Id. ¶ 20. One week
later, Eminence Capital filed an action in the Delaware Court
of Chancery against the board of directors of JOSB, claiming
that the JOSB board had breached its fiduciary duty by
failing to negotiate with Men's Wearhouse in good faith.
See Id. ¶ 22.
February 24, 2014, Men's Wearhouse increased the tender
offer price to $63.50 per share, and announced a willingness
to further increase the price to $65 per share. Id.
¶ 23. According to the Amended Complaint, this new offer
was induced by a Standstill Agreement entered into by
Eminence Capital and Men's Wearhouse. Id. ¶
24. In exchange for Men's Wearhouse's increased bid,
the Standstill Agreement provided, among other things, that
Eminence Capital would withdraw the Proxy Solicitation and
cease its efforts to pressure the MW Board. See Id.
¶ 25(a). The Standstill Agreement also provided that
Eminence Capital would vote its shares of common stock in
accordance with the recommendation of the MW Board.
Id. Plaintiff alleges that the Standstill Agreement
"reflected a formal or informal understanding between
Eminence [Capital] . . . and the members of the [MW Board],
" which formed "a group within the meaning of
Section 13(d) of the Exchange Act for the purpose of voting
[Men's Wearhouse's] common stock." Id.
¶ 25(b). The alleged group's collective stake in
Men's Wearhouse exceeded 10% of Men's Wearhouse's
outstanding shares. Id. According to Plaintiff, the
Standstill Agreement was operative from February 24, 2014
through at least July 1, 2015. See Id. ¶
December 16, 2014, Eminence Capital is alleged to have
purchased a total of 1, 125, 000 shares of Men's
Wearhouse's common stock for an average price of $41.88
per share, thus becoming the beneficial owner of 11.8% of the
outstanding shares. See Id. ¶¶ 29,
According to the Amended Complaint, Eminence Capital made the
following sales of Men's Wearhouse stock during the same
general period: (1) a December 1, 2014 sale of 43, 842 shares
at $46.72 per share; (2) an April 27, 2015 sale of 9, 446
shares at $57.14 per share; (3) a May 7, 2015 sale of 11, 234
shares at $57.78 per share; (4) a May 26, 2015 sale of 5, 843
shares at $58.29 per share; and (5) a June 5, 2015 sale of 1,
047, 097 shares at $57.97 per share. Id. ¶ 32.
Plaintiff alleges that Eminence Capital realized
approximately $17.4 million in profits from these sales, all
of which occurred within six months of the December 16, 2014
purchase of shares. Id. ¶¶ 32-33.
December 11, 2015, Plaintiff sent a letter to Men's
Wearhouse demanding that it pursue a Section 16(b) claim
against Eminence Capital. See Id. ¶ 35, Ex. A.
After a series of communications between Plaintiff, Men's
Wearhouse, and Eminence Capital, Men's Wearhouse declined
to sue. See Id. ¶¶ 36-44. On January 26,
2016, the MW Board approved an Agreement and Plan of Merger
(the "Reorganization") to reorganize Men's
Wearhouse into a wholly-owned subsidiary of Tailored Brands.
Id. ¶ 3(b)-(d). The Reorganization took place
on January 31, 2016 in the form of a stock-for-stock
swap-i.e., each outstanding share of common stock in
Men's Wearhouse was converted into one share in Tailored
Brands. Id. ¶ 3(b). As a result of the
Reorganization, Plaintiff was no longer a shareholder of
Men's Wearhouse and became a shareholder of its parent,
Tailored Brands. Id. ¶ 2. Plaintiff filed this
action on May 5, 2016.
survive a motion to dismiss under Rule 12(b)(6), "a
complaint must contain sufficient factual matter, accepted as
true, to state a claim to relief that is plausible on its
face." Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (quotation marks omitted). While the Court must accept
as true "all of the factual allegations in the
complaint, " it may disregard "[t]hreadbare
recitals of the elements of a cause of action, supported by
mere conclusory statements." Id. A claim is
plausible when the plaintiff "pleads factual content
that allows the court to draw the reasonable inference that
the defendant is liable for the misconduct alleged."
16 of the Exchange Act imposes certain requirements and
prohibitions on a statutorily defined set of persons,
commonly known as statutory insiders. See generally
15 U.S.C. § 78p. A statutory insider is one "who is
directly or indirectly the beneficial owner of more than 10
percent of any class of any equity security (other than an
exempted security) which is registered pursuant to [15 U.S.C.
§ 78/], or who is a director or an officer of the issuer
of such security." Id. § 78p(a)(1).
Statutory insiders are prohibited under Section 16(b) from
realizing profits from the purchase and sale of securities of
the issuer within any given six-month period-i.e.,
"short-swing profits." Id. § 78p(b).
Specifically, Section 16(b) states that:
For the purpose of preventing the unfair use of information
which may have been obtained by such beneficial owner,
director, or officer by reason of his relationship to the
issuer, any profit realized by him from any purchase and
sale, or any sale and purchase, of any equity security of
such issuer (other than an exempted security) or a
security-based swap agreement involving any such equity
security within any period of less than six months, unless
such security or security-based swap agreement was acquired
in good faith in connection with a debt previously
contracted, shall inure to and be recoverable by the issuer,
irrespective of any intention on the part of such beneficial
owner, director, or officer in entering into such ...