Gabriele Chechele v. Scheetz et al
Filing
26
OPINION AND ORDER, that, for the foregoing reasons, the Court finds that Plaintiff has failed to plead the existence of a shareholder group, and thus failed to establish Section 16(b) liability. Accordingly, Defendant's motion to dismiss is HEREBY GRANTED. The Clerk of the Court is respectfully directed to terminate the motion located at Doc. No. 19 and to close this case. (Signed by Judge Richard J. Sullivan on 8/29/11) (pl)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
No. 10 Civ. 7992 (RJS)
USDS SDNY
DOCC~f~:I',
DONNA ANN GABRIELE CHECHELE,
ELECrr~,,].-';iCALLY
Dor #: --------r~--
DAlE FILED:
Plaintiff,
FiLED
7b /1I
o
VERSUS
W. EDWARD SCHEETZ AND MORGAN HOTEL GROUP CO.,
Defendants.
OPINION AND ORDER
August 29, 2011
RICHARD J. SULLIVAN, District Judge:
1.
Plaintiff Donna Ann Gabriele Chechele
brings this suit against Defendant w.
Edward Scheetz, the fonner President and
CEO of nominal Defendant Morgans Hotel
Group Co. ("Morgans" or the "Company"),
seeking to recover short-swing profits
pursuant to Section 16(b) of the Securities
Exchange Act of 1934 (the "Exchange
Act"), 15 U.S.C. § 78p(b). Now before the
Court is Defendant Scheetz's motion to
dismiss the Complaint pursuant to Rule
12(b)(6) of the Federal Rules of Civil
Procedure. For the reasons that follow, the
motion is granted.
BACKGROUND I
Plaintiff is a New Jersey resident and
shareholder of nominal Defendant Morgans
(CompI. ~ 3), a Delaware corporation with
its principal offices in New York (id. ~ 4).
Defendant Scheetz is the fonner president
and CEO of Morgans, as well as the cofounder, co-chainnan and co-CEO of
NorthStar
Capital
Investment
Corp.
("NorthStar"), a Maryland corporation
fonned "for the purpose of investing in debt
I The following facts are derived from the Complaint.
In resolving the instant motion, the Court has also
considered Defendant's Memorandum of Law in
Support of the Motion to Dismiss ("Def.'s Mem."),
Plaintiffs Memorandum of Law in Opposition to the
Motion to Dismiss ("Pl.'s Opp'n"), and Defendant's
Reply Memorandum of Law in Support of the
Motion to Dismiss ("Reply"), as well as the various
exhibits and declarations attached thereto.
II. LEGAL STANDARDS
and equity interests in real estate assets and
businesses.” (Id. ¶ 5, 10(ii).)
In reviewing a motion to dismiss
pursuant to Rule 12(b)(6) of the Federal
Rules of Civil Procedure, the Court must
accept as true all factual allegations in the
complaint and draw all reasonable
inferences in favor of the plaintiff. ATSI
Commc’ns v. Shaar Fund, Ltd., 493 F.3d 87,
98 (2d Cir. 2007). To survive a Rule
12(b)(6) motion to dismiss, a complaint
must allege “enough facts to state a claim to
relief that is plausible on its face.” Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 570
(2007). “A claim has facial plausibility
when the plaintiff pleads factual content that
allows the court to draw the reasonable
inference that the defendant is liable for the
misconduct alleged.” Ashcroft v. Iqbal, 129
S. Ct. 1937, 1949 (2009). By contrast, a
pleading that only “offers ‘labels and
conclusions’ or ‘a formulaic recitation of the
elements of a cause of action will not do.’”
Id. (quoting Twombly, 550 U.S. at 555). If
the plaintiff “ha[s] not nudged [his] claims
across the line from conceivable to
plausible, [his] complaint must be
dismissed.” Twombly, 550 U.S. at 570.
Scheetz was allegedly a member of a
shareholder “group” as defined in Section
13(d) of the Exchange Act, 15 U.S.C. §
78m(d), 17 C.F.R. § 240.13d-5(b)(1). (Id.
¶ 10.) In addition to Scheetz, that group
allegedly included (1) NorthStar; (2) David
Hamamoto, a business partner of Scheetz
and current chairman of Morgans, as well as
co-founder, co-chairman, and co-CEO of
NorthStar; and (3) Marc Gordon, a business
partner of Scheetz and Hamamoto, current
president of Morgans, and former vice
president of NorthStar. (Id.)
The
shareholder group allegedly arose from a
series of “express or implied” agreements
for the purpose of acquiring, holding,
voting, or disposing of Morgans common
stock.
(Id. ¶ 11.) These agreements
allegedly included (1) a “Control
Agreement”; (2) “Lock-Up Agreements”;
(3) “Registration Rights Agreements”; (4)
“NorthStar Agreements”; and (5) “Other
Agreements.”
(Id.) According to the
Complaint, the members of the alleged
shareholder group beneficially owned more
than 10% of the outstanding shares of
Morgans common stock, thereby subjecting
Scheetz to Section 16(b) liability for his
sales of Morgans stock within the six-month
short-swing period. (Id. ¶¶ 12-13, 15-16.)
III. DISCUSSION
“Section 16(b) of the Exchange Act
requires that any profits derived from shortswing trading be disgorged to the issuer of
the stock.” Morales v. Quintel Entm’t, 249
F.3d 115, 121 (2d Cir. 2001). Short-swing
trading is generally defined as “the purchase
and sale (or vice versa) of a company’s
stock within a six-month period by persons
deemed to be ‘insiders’ . . . .” Id. Designed
to “curb the evils of insider trading,”
Reliance Elec. Co. v. Emerson Elec. Co.,
404 U.S. 418, 422 (1972), Section 16(b)
provides, in relevant part:
Plaintiff commenced this action by filing
a Complaint on October 20, 2010, seeking to
recover no less than $3,500,000 in shortswing profits allegedly realized and retained
by Scheetz in violation of Section 16(b).
(Id. ¶ 18.) Scheetz moved to dismiss on
January 14, 2011, and the motion was fully
submitted as of February 7, 2011.
2
§ 240.16a-1(a)(1). The borrowed definition
from SEC Rule 13d-5(b)(1), promulgated
under Section 13(d), provides, in relevant
part:
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 securitybased swap agreement . . . involving
any such equity security within any
period of less than six months, . . .
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 transaction of
holding the security or securitybased swap agreement purchased or
of not repurchasing the security or
security-based swap agreement sold
for a period exceeding six months..
[W]hen two or more persons agree to
act together for the purpose of
acquiring, holding, voting or
disposing of equity securities of an
issuer, the group formed thereby
shall be deemed to have acquired
beneficial ownership . . . of all equity
securities of that issuer beneficially
owned by any such persons.
17 C.F.R. § 240.13d-5(b)(1) (emphasis
added). Accordingly, under Section 13(d)
and the corresponding regulations, “if two or
more entities agree to act together for any of
the listed purposes, a ‘group’ is ‘thereby’
formed.” Roth v. Jennings, 489 F.3d 499,
507-08 (2d Cir. 2007).
In this case, it is undisputed that Scheetz
did not personally own more than 10% of
Morgans stock. Rather, Plaintiff alleges that
“[b]y virtue of his membership in the . . .
Shareholder Group, Defendant W. Edward
Scheetz was deemed, at all relevant times, to
have beneficially owned in excess of 10% of
the outstanding shares of the common stock
of [Morgans].” (Compl. ¶ 13.) The alleged
shareholder group is the subject of this
motion to dismiss, which presents a single
question: does the Complaint contain
“factual content” sufficient to permit the
Court to “draw the reasonable inference”
that a Section 13(d) group existed? Iqbal,
129 S. Ct. at 1949. For the reasons that
follow, the Court concludes that it does not.
15 U.S.C. § 78p(b). Thus, Section 16(b)
imposes strict liability on insiders, including
officers, directors, and beneficial owners of
more than 10% of a company’s securities,
who realize short-swing profits. See Roth ex
rel. Beacon Power Corp. v. Perseus L.L.C.,
522 F.3d 242, 244 (2d Cir. 2008).
Although “[t]he Exchange Act does not
define the term ‘beneficial owner’ as it is
used in § 16(b),” regulations promulgated by
the SEC in 1991 “creat[ed] a two-tiered
analysis of beneficial ownership.” Morales,
249 F.3d at 122. SEC Rule 16a-1(a)(1)
provides that “[s]olely for purposes of
determining whether a person is a beneficial
owner of more than ten percent of any class
of equity securities,” the term “beneficial
owner” means, with exceptions not pertinent
here, “any person who is deemed a
beneficial owner pursuant to section 13(d) of
the Act and the rules thereunder.” 17 C.F.R.
A. “Control Agreement”
Plaintiff alleges that the shareholder
group arose from a series of five agreements
entered and executed “for the purpose of
3
Faced with these deficiencies, Plaintiff
attempts to bolster the plausibility of an
alleged Control Agreement by pointing to
the contents of a credit agreement between
Morgans and certain lenders unrelated to
this action (the “Credit Agreement”). The
Credit Agreement, which is attached in part
to the motion papers but not referenced in
the Complaint, provides that an “Event of
Default” will occur if Morgans undergoes a
“Change in Control.” (Decl. of Keenan D.
Kmiec, Jan. 31, 2011, Doc. No. 24 (“Kmiec
Decl.”), Ex. E.) Among the four
circumstances that constitute a Change in
Control under the Credit Agreement are two
that pertain to the Morgans stock ownership
of the “Permitted Investors,” including
Scheetz,
Hamamoto,
Gordon,
and
NorthStar.2 (Id.) Plaintiff strains to link the
Credit Agreement with the alleged Control
Agreement in its opposition papers, arguing
that “[t]he terms of the Credit Agreement
would be difficult to satisfy without the
Control Agreement.” (Pl.’s Opp’n 11.)
Thus, “[b]ecause the Company’s continuing
compliance with its obligations under the
Credit Agreement depended on such an
agreement,” Plaintiff concludes that “it is
reasonable to infer that the Control
Agreement existed.” (Id. at 12.)
acquiring, holding, voting, or disposing of
[Morgans] securities.” (Compl. ¶ 11.) The
first and most contested agreement is the
alleged “Control Agreement” between
Scheetz, Hamamoto, Gordon, NorthStar and
one or more Morgans creditors.
(Id.
¶ 11(i).) The Complaint alleges that, on or
about October 6, 2006, the foregoing parties
“agreed that they or their affiliates would
maintain control of nominal Defendant
[Morgans] by . . . holding and, if necessary,
acquiring shares of the common stock of
nominal Defendant [Morgans] in an
aggregate amount in excess of specified
thresholds.” (Id.) The Complaint further
alleges upon information and belief that the
Control Agreement was reaffirmed as
amended on November 10, 2006, January 8,
2007, October 10, 2007, January 16, 2008,
August 5, 2009, and remains in full force
and effect. (Id.)
As previously noted, factual allegations
are presumed true on a motion to dismiss –
but mere conclusions are not. See Twombly,
550 U.S. at 555 (quoting Papasan v. Allain,
478 U.S. 265, 286 (1986)). Where, as here,
a claim is premised on the existence of an
agreement, “stating such a claim requires a
complaint with enough factual matter (taken
as true) to suggest that an agreement was
made.” Id. at 556. While the facial
plausibility of the alleged shareholder group
does not turn on the existence of a particular
agreement, bare allegations that the parties
“agreed that they . . . would maintain control
of [Morgans]” will not, without more,
suffice. (Compl. ¶ 11(i).) See Iqbal, 129 S.
Ct. at 1949 (holding that a pleading that only
“offers labels and conclusions or a formulaic
recitation of the elements of a cause of
action will not do”); Starr v. Sony BMG
Music Entm’t, 592 F.3d 314, 319 n.2 (2d
Cir. 2010) (“The allegation that defendants
agreed . . . is obviously conclusory, and is
not accepted as true.”).
The inference Plaintiff urges the Court to
adopt crucially depends on the terms of the
Credit Agreement, which Plaintiff contends
is “integral” to the Complaint and therefore
properly before the Court. (Pl.’s Opp’n 14.)
On a motion to dismiss, “the court may
consider any written instrument attached to
2
Under subsection (b) of the Credit Agreement, a
Change in Control would occur if “any Person or
group” acquired more than 40% of Morgans stock
while the Permitted Investors owned a lesser
percentage. (Kmiec Decl., Ex. E.) Under subsection
(d) of the Credit Agreement, a Change in Control
would occur if “any Person or group other than the
Permitted Investors” acquired direct or indirect
control of Morgans. (Id.)
4
without regard to the truth of their
contents”). Thus, although the Court may
take judicial notice of the Credit Agreement,
it declines to credit the truth of its contents
or to import its terms wholesale into the
Complaint. Accordingly, the Court finds
neither the Credit Agreement nor the alleged
Control Agreement sufficient to support the
“reasonable inference” of Section 13(d)
group conduct. Iqbal, 129 S. Ct. at 1949.
the complaint as an exhibit or incorporated
in the complaint by reference, as well as
documents upon which the complaint relies
and which are integral to the complaint.”
Matson v. Bd. of Educ., 631 F.3d 57, 62 (2d
Cir. 2011) (citing Subaru Distribs. Corp. v.
Subaru of Am., Inc., 425 F.3d 119, 122 (2d
Cir. 2005)). A document is considered
“integral” to the pleadings only where the
plaintiff (1) has “actual notice” of the
extraneous information and (2) relied upon
the document in framing the complaint.
DeLuca v. AccessIT Group, Inc., 695 F.
Supp. 2d 54, 60 (S.D.N.Y. 2010) (internal
citations and quotation marks omitted).
“[A] plaintiff's reliance on the terms and
effect of a document in drafting the
complaint is a necessary prerequisite to the
court’s consideration of the document on a
dismissal motion; mere notice or possession
is not enough.” Chambers v. Time Warner,
Inc., 282 F.3d 147, 153 (2d Cir. 2002). In
this case, Plaintiff clearly fails to satisfy the
second prong of the “integral” document
test, since the Complaint does not reference
the Credit Agreement, much less “rel[y]
heavily upon its terms and effect.” Id.
B. Lock-Up Agreements
Plaintiff further argues that the existence
of the alleged shareholder group is
demonstrated by a series of Lock-Up
Agreements entered “[f]rom time to time
since February 2006” and executed “for the
purpose of holding and disposing of”
Morgans securities.
(Compl. ¶ 11(ii).)
According to the Complaint, Scheetz,
Hamamoto, Gordon, and NorthStar each
entered “one or more” Lock-Up Agreements
with “one or more” underwriters, by which
they agreed “to hold securities issued by
[Morgans] for a specified period of time and
not to dispose of such securities without the
consent of such underwriters.”
(Id.)
Plaintiff argues that the foregoing Lock-Up
Agreements “permit a reasonable inference”
that members of the alleged shareholder
group “engaged in coordinated activity.”
(Pl.’s Opp’n 21.)
Plaintiff argues in the alternative that the
Credit Agreement is properly before the
Court as a “legally required public
disclosure document[] filed with the SEC.”
ATSI Commc’ns, 493 F.3d at 98. Although
it appears that the Credit Agreement was
filed with the SEC (Kmiec Decl. 2), the
Court may consider regulatory filings “only
to determine what the documents stated,”
and “not to prove the truth of their
contents.” Jennings, 489 F.3d at 509 (citing
Kramer v. Time Warner, Inc., 937 F.2d 767,
774 (2d Cir. 1991)); accord Staehr v.
Hartford Fin. Servs. Group, Inc., 547 F.3d
406, 425 (2d Cir. 2008) (holding that on a
motion to dismiss, “it is proper to take
judicial notice of the fact that . . . regulatory
filings contained certain information,
The primary flaw with such an
inference, of course, is that the alleged
members of the shareholder group were
parties to separate Lock-Up Agreements.
Under SEC Rule 13d-5(b)(1), a “group” is
formed only “[w]hen two or more persons
agree to act together for the purpose of
acquiring, holding, voting or disposing of
equity securities of an issuer . . . .” 17
C.F.R. § 240.13d-5(b)(1) (emphasis added).
But according to Plaintiff’s own allegations,
each member of the alleged group entered
5
recognized
lock-up
provisions
as
supplemental evidence of a “mutual
agreement.” Id. at 126. In the absence of
additional evidence, however, other courts
have rejected allegations of group conduct
based solely on the existence of parallel
lock-up agreements with a third party. See
Donoghue v. Accenture Ltd., No. 03 Civ.
8329 (NRB), 2004 WL 1823448, at *4
(S.D.N.Y. Aug. 16, 2004) (“[T]here can be
no ‘common objective’ where, as here, an
‘agreement’ is imposed on employees by the
company.”).
In any event, Plaintiff appears to
concede that the Lock-Up Agreements,
standing alone, are not enough to allege the
existence of a shareholder group. (See Pl.’s
Opp’n 21.) The Court agrees. Because the
plausibility of a group inference based on
the Lock-Up Agreements stands and falls
with the factual content of the supporting
allegations, the Court proceeds to consider
the remaining agreements at issue.
into “one or more” separate Lock-Up
Agreements with “one or more” Morgans
underwriters – not with each other. (See
Compl. ¶ 11(ii).)
In the absence of a lock-up agreement
between the members of the alleged
shareholder group, Plaintiff argues that any
Lock-Up Agreement signed by NorthStar
demonstrates “group activity” because
members of the alleged shareholder group
“controlled NorthStar and used it as an
investment vehicle for the Company’s
common stock.” (Pl.’s Opp’n 20.) But the
Complaint includes no allegation regarding
the use of NorthStar as an “investment
vehicle” for Morgans stock. Instead, the
Complaint simply characterizes NorthStar as
“a Maryland corporation that was formed for
the purpose of investing in debt and equity
interests in real estate assets and
businesses.” (Compl. ¶ 10(ii).) Based on
the scant allegations contained in the
Complaint, the Court cannot conclude that
the existence of a Lock-Up Agreement
between NorthStar and one or more
Morgans underwriters supports the requisite
inference of group conduct within the
meaning of Section 13(d).
C. Registration Rights Agreements
Plaintiff’s allegations with respect to the
“Registration Rights Agreements” are
similarly deficient. The Complaint alleges
that, “[f]rom time to time since February
2006,” Scheetz, Hamamoto, Gordon, and
NorthStar entered “one or more” express or
implied agreements with Morgans “for the
purpose of disposing of” Morgans
securities.
(Compl. ¶ 11(iii).)
The
Complaint further alleges that, pursuant to
the Registration Rights Agreements,
Morgans “agreed to seek registration under
the Securities Act of 1933 . . . for the
purpose of facilitating the unrestricted
disposition of securities” held by Scheetz,
Hamamoto, Gordon, NorthStar, and any
affiliates. (Id.)
Plaintiff argues in the alternative that the
similarity of the various Lock-Up
Agreements gives rise to an inference of
coordinated activity. Although Plaintiff
correctly observes that the formation of a
shareholder group “may be formal or
informal,” Morales, 249 F.3d at 124, “[t]he
touchstone of a group within the meaning of
Section 13(d) is that the members combined
in furtherance of a common objective,” CSX
Corp. v. Children’s Inv. Fund Mgmt. (UK)
LLP, --- F.3d ---, 2011 WL 2750913, at *5
(2d Cir. July 18, 2011) (internal citations
and quotation marks omitted). In Morales v.
Quintel Entertainment, Inc., 249 F.3d 115
(2d Cir. 2001), the Second Circuit
6
D. NorthStar and Other Agreements
Once again, Plaintiff’s allegations that
Scheetz entered “one or more” agreements,
express or implied, “[f]rom time to time
since February 2006,” are nearly devoid of
factual content. (Id.) It appears that the
only agreement approximating Plaintiff’s
description is a Registration Rights
Agreement between Morgans and an entity
known as NorthStar Partnership, L.P. (See
Def.’s Mem. 18 (citing Decl. of Howard J.
Kaplan, Jan. 14, 2011, Doc. No. 20
(“Kaplan Decl.”), Ex. 6).)
But the
Registration Rights Agreement attached to
the motion papers can hardly form the basis
for Section 16(b) liability, since neither
Scheetz nor any other member of the alleged
shareholder group was party to the
agreement. (Id.)
Finally, Plaintiff also fails to provide
factual support for her allegations regarding
the “NorthStar Agreements” and “Other
Agreements.”
In each instance, the
Complaint alleges that Scheetz, Hamamoto,
Gordon, NorthStar, “or its or their affiliates”
have entered “one or more agreements,
express or implied, for the purposes of
acquiring, holding, voting, or disposing of
issuer securities, including securities issued
by [Morgans].”
(Compl. ¶ 11(iv-v)
(emphasis added).) The allegations with
respect to each set of agreements comprise a
single, purely conclusory, nearly identical
sentence.3
With respect to the alleged NorthStar
Agreements, Plaintiff again seeks to salvage
her claim by going outside the pleadings.
To that end, Plaintiff appeals to various SEC
filings not mentioned in the Complaint,
including a Schedule 13D and an IPO
Prospectus which reference NorthStar
Partnership, L.P. (Pl.’s Opp’n 16.) For the
reasons previously stated, see supra Part
III.A, these SEC filings are neither
incorporated by reference nor “integral” to
the pleadings. See DeLuca, 695 F. Supp. 2d
at 60. Although the Court takes judicial
notice of the fact of such filings, it declines
to credit the truth of their contents. See
Staehr, 547 F.3d at 425.
Moreover,
Schedule 13D simply indicates the identities
of the various reporting persons (i.e. those
investors who have acquired 5% or more of
the Company’s shares). See 17 C.F.R.
§ 240.13d-1(a). Nothing in Schedule 13D
supports an inference that one or more of the
reporting persons have entered into an
agreement “to act together for the purpose of
Faced with the inconvenient fact that no
member of the alleged shareholder group
signed the Registration Rights Agreement,
Plaintiff attempts to create yet another
shareholder group, arguing that NorthStar
Partnership, L.P. “is itself a shareholder
group of which Scheetz, Hamamoto,
Gordon, and NorthStar are members.” (Pl.’s
Opp’n 22.)
Plaintiff also claims that
NorthStar Partnership, L.P. is a “vehicle” for
the alleged shareholder group, such that
“any action” by NorthStar Partnership, L.P.
“reflects coordinated action” by members of
the alleged group. (Id. at 23.) But none of
these allegations appear in the Complaint
itself, which makes no mention of NorthStar
Partnership, L.P., alluding instead to
unspecified NorthStar “affiliates.” (See,
e.g., Compl. ¶ 11(iv).) Accordingly, the
Court finds Plaintiff’s allegations with
respect to the Registration Rights
Agreements to be wholly insufficient to
establish the existence of a shareholder
group within the meaning of Section 13(d).
3
The “NorthStar Agreements” sentence includes the
additional phrase, “in connection with NorthStar’s
real estate investment business.” (Compl. ¶ 11(iv).)
7
E. Leave to Amend
acquiring, holding, voting or disposing of"
Morgans securities. 17 C.F .R. § 240.13d·
5(b)(1).
In the final paragraph of her
memorandum in opposition, Plaintiff seeks
leave to amend the Complaint in the event
that the motion to dismiss is granted. (See
Pl.'s Opp'n 25.)
While Rule 15(a)
"provides that leave to amend shall be freely
given when justice so requires, the Court has
broad discretion in deciding whether or not
to grant such a request." DeBlasio v. Merrill
Lynch & Co., No. 07 Civ. 318 (RJS), 2009
WL 2242605, at *41 (S.D.N.Y. July 27,
2009) (internal citations and quotation
marks omitted). A party seeking leave to
amend must provide some indication of the
substance of the contemplated amendment
in order to allow the Court to apply the
standards governing Rule 15(a). See
Horoshko v. Citibank, NA., 373 F.3d 248,
249 (2d Cir. 2004). Absent any indication
of the substance of the proposed amendment
and in light of the fundamental deficiencies
of the existing Complaint, Plaintiff's request
to amend the pleadings is denied.
By Plaintiff's own admission, the
remaining "Other Agreements" are simply a
"catch-all" allegation. (Pl.'s Opp'n 23.)
The Complaint offers no more than an
assertion that the parties agreed, coupled
with a "formulaic recitation" of the Section
13(d) standard. Iqbal, 129 S. Ct. at 1949.
Bare allegations that an unspecified number
of parties entered an unspecified agreement
at an unspecified time or times are simply
insufficient to support an inference that
Scheetz controlled more than ten percent of
Morgans stock.
***
Taken together, the various "express or
implied" agreements alleged in the
Complaint fail to plead sufficiently the
existence of a shareholder group that would
render Scheetz liable under Section 16(b).
As noted above, a proper complaint "pleads
factual content that allows the court to draw
the reasonable inference that the defendant
is liable for the misconduct alleged." Iqbal,
129 S. Ct. at 1949. It is not an invitation to
a scavenger hunt in which defendants and
courts are tasked with unearthing and
deciphering clues and omens from assorted
documents unmentioned -- or at best barely
alluded to -- in the pleadings. A careful
inspection of the Complaint here reveals the
alleged "Agreements" not as cumulative
evidence of liability, but as commingled
Such a
conclusion and speculation.
complaint cannot survive the scrutiny of the
federal pleading standard, and must
therefore be dismissed.
III. CONCLUSION
For the foregoing reasons, the Court
finds that Plaintiff has failed to plead the
existence of a shareholder group, and thus
failed to establish Section 16(b) liability.
Accordingly, Defendant's motion to dismiss
is HEREBY GRANTED. The Clerk of the
Court is respectfully directed to terminate
the motion located at Doc. No. 19 and to
close this case.
SO ORDERED.
~
R4tHARDJ. SULLIVAN
United States District Judge
Dated: August 29,2011
New York, New York
8
_
r
~
***
Plaintiff is represented by James Austen
Hunter of Hunter & Kmiec, 150 East 44th
Street, No. 9A, New York, New York
10017, and Keenan Douglas Kmiec of
Hunter & Kmiec, 111 W. 7th Street, Suite
913, Los Angeles, CA 90015. Defendant
Scheetz is represented by Howard Jay
Kaplan, Joseph Andrew Matteo, and Stanley
Samuel Arkin of Arkin Kaplan Rice LLP,
590 Madison Avenue, 35th Floor, New
York, New York 10022.
Nominal
Defendant Morgans is represented by
Dennis H. Tracey III and Robert Brian
Black of Hogan Lovells US LLP, 875 Third
Avenue, New York, New York 10022.
9
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