Second Circuit Affirms in Part and Vacates in Part District Court's Ruling in Roth v. Jennings

Holding:

An agreement to act together for the purpose of acquiring, holding, or disposing of shares need not be unconditional in order to support a finding that the actors constituted a group within the meaning of federal securities laws; additionally, formation of such a group may be formal or informal and may be proved by direct or circumstantial evidence.

Detailed Summary:

This case is an appeal from the dismissal of a derivative suit filed on behalf of issuer (nominal defendant MMI). Plaintiff sought disgorgement to issuer of “short-swing profits” made by issuer’s former chairman (defendant Jennings) and a private company (defendant EMR), which held 14.8% of issuer’s stock.  The district court granted both defendants’ motions to dismiss on the ground that the complaint was insufficient to plead that defendants acted as a group, given the disclaimers of group status made in the documents they filed with the Securities and Exchange Commission (“SEC”).

The district court justified its dismissal of the suit…

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