Securities Law | Expert Legal Commentary
October 19, 2007
Roth v. Jennings Seeks to Address Issue of What Constitutes a Group in Applying Section 16(b) of the Exchange Act
Roth v. Jennings
By
Joel B. Ginsberg
In Roth v. Jennings, 489 F.3d 499 (2nd Cir. 2007), the Second Circuit Court revisited the issue of pleading a “group” 1 for purposes of Section 13(d) of the Securities Exchange Act of 1934. The court reversed a district court’s dismissal of a plaintiff’s Section 16(b) claim seeking disgorgement of short-swing profits. The appellate court said that the district court had improperly given too much weight to the defendants’ disclaimers of their “group” status in SEC filings and had misconstrued the final sentence of Section 16(b), which states that the section does not apply if the short-swing trader is not a “beneficial owner” at both ends of the purchase-sale transaction.
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1 When one or more shareholders act together, they may be considered a “group” under the SEC rules, which means their actions may be viewed collectively rather than separately.
2See, e.g., Wellman v. Dickinson, 682 F.2d 355, 363 (2nd Cir. 1982); Hallwood Realty Partners v. Gotham Partners, 286 F.3d 613, 617-618 (2nd Cir. 2002) Global Intellicom v. Thomson Kernaghan & Co., No. 99 CIV 342, 1999 WL 544708 (SDNY July 27, 1999); Hollywood Casino Corp. v. Simmons, No. 3:02-CV-0325-M, 2002 WL 1610598 (N.D. Tex. July 18, 2002).
3 Torchmark v. Bixby, 708 F. Supp. 1070 (W.D. Mo. W. Div. 1988).
4 Litzler v. CC Investments, 411 F. Supp. 2d 411, 415 (SDNY 2006).
5meVC Draper Fisher Jurvetson Fund I Inc. v. Millennium Partners LP, 260 F. Supp. 2d 616 (SDNY 2003).
6 A Rule 12(b)(6) motion is a motion to dismiss the complaint on the grounds that it does not state a cause of action upon which relief can be granted.
7Roth v. Jennings, No. 03-CV-7760, 2006 WL 278135 (SDNY Feb. 2, 2006)
8For example, in Matusovsky v. Merrill Lynch, 186 F. Supp.2d 397, 400 (SDNY 2002), the plaintiff claimed that he signed a general release without consideration, but the release showed consideration on its face – no factual determination was required – so the court dismissed the case. In Rapoport v. Asia Electronics Holding Co., 88 F. Supp. 2d 179, 184 (SDNY 2000), the prospectus in question on its face showed the disclosure of facts that the complaint alleged were omitted – again, no factual analysis was necessary – so the court dismissed the case. The documents may be considered only to show that they contain something, not for the truth of what they contain.
9 See below for discussion of the dismissal of EMR.
10On March 24, 2008, following the remand from the Second Circuit, the district court entered a default judgment against Jennings due to his failure to appear before the court or respond to Plaintiff’s communications. Roth v. Jennings, No. 03 CV 7760, 2008 WL 782725 (SDNY, March 24, 2008).
