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Roth v. Scopia Capital Management LP

United States District Court, S.D. New York

July 28, 2017

ANDREW E. ROTH, Plaintiff,
v.
SCOPIA CAPITAL MANAGEMENT LP; SCOPIA MANAGEMENT, INC.; SCOPIA CAPITAL GP LLC; MATTHEW SIROVICH; JEREMY MINDICH; SCOPIA WINDMILL FUND LP; SCOPIA PX LLC; SCOPIA PX INTERNATIONAL MASTER FUND LP; SCOPIA LB LLC; SCOPIA PARTNERS LLC; SCOPIA LB INTERNATIONAL MASTER FUND LP; SCOPIA INTERNATIONAL MASTER FUND LP; SCOPIA LONG LLC; SCOPIA LONG INTERNATIONAL MASTER FUND LP; SCOPIA LONG QP LLC; AND SMA, Defendants, SPIRIT AEROSYSTEMS HOLDINGS, INC., Nominal Defendant.

          MEMORANDUM OPINION AND ORDER

          LAURATAYLORSWAIN, United States District Judge

         Plaintiff Andrew E. Roth brings this action pursuant to Section 16(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78p(b) (“Section 16(b)”), on behalf of nominal defendant Spirit Aerosystems Holdings, Inc. (“Spirit”), seeking disgorgement of so-called “short-swing” profits by Defendants Scopia Capital Management LP; Matthew Sirovich; Jeremy Mindich; Scopia Management, Inc.; Scopia Capital GP LLC; Scopia Windmill Fund LP; Scopia Long LLC; Scopia LB LLC; Scopia PX LLC; Scopia Partners LLC; Scopia Long QP LLC; Scopia International Master Fund LP; Scopia PX International Master Fund LP; Scopia LB International Master Fund LP; Scopia Long International Master Fund LP; and the “SMA” (collectively, “Defendants”). Defendants now move pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6) to dismiss the complaint for lack of subject-matter jurisdiction and failure to state a claim upon which relief can be granted, respectively.

         The Court has subject-matter jurisdiction of this action pursuant to 15 U.S.C. § 78aa. The Court has considered thoroughly the parties' submissions. For the reasons that follow, Defendants' motion is denied.

         Background

         The following recitation of facts is drawn from the Complaint (Docket Entry No. 1, Complaint (“Compl.”)), the well-pleaded factual content of which is taken as true for purposes of this motion to dismiss, and, as to issues pertinent to the Rule 12(b)(1) motion, from exhibits submitted by Plaintiff. See Kamen v. Am. Tel. & Tel. Co., 791 F.2d 1006, 1011 (2d Cir. 1986).

         Between September 2014 and June 2015, while Defendants were beneficial owners of more than 10% of Spirit's common stock, Defendants purchased and sold Spirit shares, realizing a profit Plaintiff alleges was approximately $10 million. (Compl. ¶¶ 18-19.) On May 13, 2016, after the alleged short-swing transaction had concluded, Plaintiff purchased Spirit stock. (Docket Entry No. 26, Decl. of Joshua S. Broitman, Ex. 1). On the same day, Plaintiff requested that Spirit file suit against Defendants pursuant to Section 16(b) to recover their profits garnered through the short-swing transaction. (Compl. ¶ 24.) Spirit did not initiate such an action. (Id.) More than 60 days after requesting that Spirit sue Defendants for violating Section 16(b), Plaintiff filed this complaint in August 2016, seeking disgorgement. (Compl. p. 7.) See 15 U.S.C. § 78p(b) (establishing request requirement and waiting period before which a security holder may bring suit pursuant to Section 16(b)).

         Discussion

         Defendants move to dismiss Plaintiff's complaint pursuant to Rule 12(b)(1) for lack of subject matter jurisdiction. Specifically, Defendants maintain that Plaintiff cannot demonstrate an injury in fact that is sufficiently traceable to Defendants' conduct to satisfy the case-or-controversy requirement of Article III of the Constitution.

         In resolving a Rule 12(b)(1) motion to dismiss an action for lack of standing, the Court adopts the “Rule 12(b)(6) standard, construing the complaint in plaintiff's favor and accepting as true all material factual allegations contained therein.” Donoghue v. Bulldog Inv. Gen. P'ship, 696 F.3d 170, 173 (2d Cir. 2010). When it comes to standing, “in essence the question . . . is whether the litigant is entitled to have the court decide the merits of the dispute” by invoking its jurisdiction. Crist v. Commission on Presidential Debates, 262 F.3d 193, 194 (2d Cir. 2001). To demonstrate constitutional standing, a plaintiff must have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision. Spokeo, Inc. v. Robins, 136 S.Ct. 1540, 1547 (2016). The plaintiff, as the party invoking federal jurisdiction, bears the burden of establishing these elements. Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992).

         “Section 16(b) of the Securities Exchange Act of 1934 imposes a general rule of strict liability on owners of more than 10% of a corporation's listed stock for any profits realized from the purchase and sale, or sale and purchase, of such stock occurring within a 6-month period. These statutorily defined ‘insiders' are liable to the issuer of the stock for their short-swing profits, and are subject to suit ‘instituted by the issuer, or by the owner of any security of the issuer in the name and [on] behalf of the issuer.'” Gollust v. Mendell, 501 U.S. 115, 116-17 (1991) (internal modifications omitted).

         Section 16(b) embodies a congressional determination “that the ‘only method . . . effective to curb the evils of insider trading was a flat rule taking the profits out of a class of transactions in which the possibility of abuse was believed to be intolerably great.'” Bulldog Inv., 696 F.3d at 174, quoting Reliance Elec. Co. v. Emerson Elec. Co., 404 U.S. 418, 422 (1972). The statute does not confer enforcement authority on the Securities and Exchange Commission. Rather, Congress authorized “two categories of private persons to sue for relief: (1) ‘the issuer' of the security traded in violation of § 16(b); or (2) ‘the owner of any security of the issuer in the name and in behalf of the issuer, '” subject to a requirement of a prior demand on the issuer. Id.; see 78 U.S.C. § 78p(b). The statute grants “enforcement standing of considerable breadth, ” looking to parties with a “private-profit motive” to carry out the enforcement function. See Gollust, 501 U.S. at 122, 124-25.

         It is undisputed that Plaintiff has statutory standing to bring a suit against Defendants under Section 16(b), as Plaintiff is a Spirit shareholder and Defendants do not dispute that the Complaint adequately states a Section 16(b) claim.[1] (Docket Entry Nos. 20, 25, 27.)

         Somewhat ironically, Defendants complain that Plaintiff has only a profit motive in bringing this lawsuit - that he did not suffer any injury on account of the short-swing trading because he purchased his shares long after the trading had concluded. Invoking the Supreme Court's recent decision on individual standing in Spokeo, Inc. v. Robins, 136 S.Ct. 1540 (2016), Defendants argue that Plaintiff lacks constitutional standing because he cannot demonstrate that he, as an individual, suffered a concrete and particularized injury by reason of the trading because he was not a shareholder at the time of the trading.

         The plaintiff in Spokeo sued an online credit reporting agency under the Fair Credit Reporting Act of 1970 (FCRA), claiming that, as a result of the company's breach of a statutory obligation to “'follow reasonable procedures to assure maximum possible accuracy of' consumer reports, ” it had disseminated incorrect information about him. Spokeo, 136 S.Ct. at 1544-45. On appeal of a Ninth Circuit decision holding that the Spokeo plaintiff had constitutional standing to bring his claim although he could not point to any injury other than the alleged violation of the statutory obligation, the Supreme Court reviewed the requisites of constitutional standing. Starting with the “fundamental” principle that the judiciary's role is cabined by “the constitutional limitation of federal-court jurisdiction to actual cases or ...


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