Rubenstein v. Liberty Media Corp. et al
OPINION re: 27 MOTION to Dismiss for Failure to State a Claim filed by Liberty Media Corp., 25 MOTION to Dismiss the Complaint filed by Live Nation Entertainment, Inc. : For the reasons stated above, the Liberty's motion to dismiss is granted. Because it is a nominal defendant, and Liberty's motion to dismiss has been granted, Live Nation's motion to dismiss is granted. (Signed by Judge Robert W. Sweet on 6/19/2017) (jwh)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
------------------------------- --- ---------x
AARON RUBENSTEIN ,
16 Civ . 7283
- against -
LIVE NATION ENTERTAINMENT ,
Nominal Defendant ,
- and -
[;QC ~r · -
LIBERTY MEDIA CORP .,
Attorneys for Plaintiff
MIRIAM TAUBER LAW PLLC
885 Park Avenue 2A
New York , NY 10075
By : Miriam Tauber, Esq .
LAW OFFICES OF DAVID LOPEZ
P . O. Box 323
171 Edge of Woods Road
Southampton , NY 11968
By : David Lopez , Esq .
Attorneys for Defendant
Liberty Media Corp .
BAKER BOTTS LLP
30 Rockefeller Plaza
New York , NY 1011 2
By : Douglas W. Henkin, Esq .
Richard B. Harper , Esq .
A P P E A R A N C E S:
2001 Ross Avenue , Suite 600
Dallas , Texas 75201-2980
By : Thomas E . O' Brien
98 San Jacinto Blvd ., Suite 1500
Austin , Texas 78701
By : Mysha Lubke , Esq .
Attorneys for Nominal Defendant
Live Nation Entertainment
LATHAM & WATKINS , LLP
140 Scott Drive
Menlo Park , CA 94025
By : Hilary H. Mattis
Robert A . Koenig , Esq .
885 Third Avenue
New York , NY 10022
Jason C . Hegt , Esq .
Defendant Liberty Media Corporation (" Liberty " or the
" Defendant " ) has moved pursuant to Rule 12(b) (6) of the Federal
Rules of Civil Procedure to dismiss the complaint of plaintiff
Aaron Rubenstein ("Rubenstein" or the " Plaintiff " )
" Complaint " ) seeking recovery for short swing profits under
Section 1 6(b) of the Securities Exchange Act of 1934 . Upon the
conclusions set forth below , the motion is granted and the
complaint against Liberty and the nominal defendant Live Nation
Entertainment ("Li ve Nation") is dismissed.
The facts as set forth in the Complaint are not
disputed unless otherwise noted .
Live Nation is a publicly held company , with common
stock registered under Section 12(b) of the Act . Compl .
Rubenstein is a shareholder of Live Nation . Id.
6 , 10.
7 . Liberty , a
corporation , is a more than 10 % owner of Live Nation . Id .
On September 4 , 2014 , Liberty entered into a forward
purchase contract (the "Forward Contract " ) with an unaffiliated
bank counterparty (the " Bank " ) . Id .
15 . The relevant terms of
the contract were summarized in a Form 4s that Liberty filed
with the SEC . Mot . to Dismiss , Ex . A (Liberty ' s September 30 ,
2015 Form 4 - Statement of Changes in Beneficial Ownership) ; Ex .
B (Liberty ' s December 1 , 2015 Form 4 - Statement of Changes in
Beneficial Ownership) .
Under the terms of the Forward Contract , Liberty
agreed to purchase from the Bank on the settlement date the
number of shares purchased by the Bank during its " initial
hedging period " - capped at 15 . 9 million shares - at a " forward
price " to be determined at the conclusion of the initial hedging
period in accordance with a formula set forth in the Forward
Contract . Compl .
15 . The initial hedging period concluded on
September 28 , 2015 , and the Forward Contract settlement date was
November 27 , 2015 . Mot . to Dismiss , Ex . A .
The final number of shares covered by the Forward
Contract was 15 . 9 million shares , and the final forward price
was $24.9345 per share. Mot . to Dismiss , Ex . B. Th e Forward
Contract was physically settled on De cember 2 , 2015 . Id .
On September 19 , 2016 , Plaintiff filed the Complaint ,
alleg i ng that , pursuant to the Forward Contract , Liberty
profited from the purchase and sale of Live Nation securities
within a period of less than six months . Compl .
1-4 . The
instant moti on to dismiss the Complaint was h eard and marked
fully submitted on February 23 , 2017 .
The Applicable Standard
The Rule 12(b) (6) standard requires that a complaint
plead sufficient facts to state a c l aim upon which re l ief can be
granted . Ashcroft v . Iqbal , 556 U. S . 662 , 677-78
Atl . Corp . v . Twombly , 550 U. S . 544 , 570
(2009) ; Bell
(2007) . In considering
a Fed . R . Civ . P . 12(b) (6) motion to dismiss , a co u rt accepts
the complaint ' s factual allegations as true and draws all
reasonable inferences in the plaintiff ' s favor . See Littlejohn
v . City of N . Y ., 795 F . 3d 297 , 306 (2d Cir . 2015) ; Chambers v .
Time Warner , Inc ., 282 F . 3d 147 , 152
(2d Cir . 2002) ; Mills v .
Polar Molecular Corp ., 1 2 F . 3d 1170 , 1174
(2d Cir . 1 993) . A
court need not accept a s true , h owever , "[l] ega l co n clus i ons ,
dedu ctions or opinions couched as factual allegations ." In re
NYSE Specialists Sec . Litig ., 503 F . 3d 89 , 95
(2d Cir . 2007)
" [A] plaintiff ' s obligation to provide the grounds of his
entitlement to relief requires more than labels and
conclusions ." Twombly , 550 U. S . at 555 (quotation marks
omitted) . A complaint must contain " sufficient factual matte r,
accepted as true , to ' state a claim to re l ief that is plausible
on its face .'" Iqbal , 556 U. S . at 663 (quoting Twombly , 550 U. S .
A claim is facially 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 ." Id .
(quoting Twombly , 550 U. S . at 556) . I n
other words , the factual allegations must " possess enough heft
to show that the pleader is en ti tled to rel i ef ." Twombly , 550
U. S . at 557
(internal quotation marks omitted) . I n determining
the sufficiency of a complaint , the Court may consider " the
factual allegations in [the]
. complaint ,
attached to the complaint as an exhibit or incorporated in it by
 matters of which judicial notice may be taken ,
which the plaintiff[ ]
. relied on in
bringing suit ." Brass v . Am . Film Techs ., Inc ., 987 F. 2d 142 ,
150 (2d Cir . 1993) ; see also Chambers v . Time Warner , Inc ., 282
F. 3d 147, 153 (2d Cir . 2002)
("[ A] plaintiff ' s reliance o n 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 ." )
(emphasis in original) ; Cosmas
v . Hassett , 886 F . 2d 8 , 13 (2d Cir . 1989)
document is not incorporated by reference into the complaint
where "[t ]he amended complaint merely discussed these documents
and presented short quotations from them").
Additionally , while " a plaintiff may plead facts
alleged upon information and belief ' where the belief is based
on factual information that makes the inference of culpability
plausible ,' such allegations must be ' accompanied by a statement
of the facts upon which the belief i s founded .'" Munoz-Nagel v .
Guess , Inc ., No . 12 - 1312 , 2013 WL 1809772 , at *3 (S .D.N. Y. Apr .
30 , 2013)
(quoting Arista Records , LLC v . Doe 3 , 604 F . 3d 110 ,
120 (2d Cir . 2010)) and Prince v . Madison Square Garden , 427 F .
Supp . 2d 372 , 384
(S . D. N.Y . 2006) ; see also Williams v .
Calderoni , No . 11 - 3020 , 2012 WL 691832 , *7
(S . D. N. Y. Mar . 1,
2012) . The pleadings , however , " must contain something more than
. a statement of facts that merely c r eates a suspicion [of]
a legally cognizable right of action ." Twombly , 550 U. S . at 555
(quoting 5 CHARLE S ALAN W
ARTH R . MILLER, FED
ERAL PRACTICE AN D
1216 (3d ed . 2004)) .
Section 16(b) Liability Has Not Been Established
Section 16 of the Securities Exchange Act , 15 U. S . C .
78p (the " Act " ) , imposes certain obligation s on officers ,
directors , and beneficial owners of more than 10 % of a class of
equity security registered under Section 12 of the Act relating
to their trading in the securities of the issuer . See 5 U. S . C .
78p ; see also Roth v . Goldman Sachs Grp . Inc ., 873 F . Supp . 2d
524 , 529 (S . D. N. Y. 2012) . Section 16(a) mandates that such
statutory " insiders " must report to the Securities and Exchange
Commission (SEC) the amounts of all equity securities
beneficially owned , and must timely disclose any changes in such
ownership . 15 U.S . C .
Section 16(b) polices trading of securities by
insiders . It "s eeks to deter ' insiders ,' who are presumed to
possess material information about the issuer , from using such
information as a basis for purchasing o r selling the issuer ' s
equity securities at an advantage over persons with whom they
trade ." Gwozdzinsky v . Zell/Chilmark Fund , L . P ., 156 F . 3d 305 ,
(2d Cir . 1998). In rele van t part , it provides:
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 .
. 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
15 u . s . c .
Section 16(b) is a strict liability statute , a " flat
rule " requiring insiders to disgorge profits from any purchase
and sale of company securities within a six - month period . See
Donoghue v . Bulldog Inv ' rs Gen . P' ship , 696 F . 3d 170 , 176 (2d
Cir . 2012)
(using language from Reliance Elec . Co . v . Emerson
Elec . Co ., 404 U. S . 418 , 422
(1972)) ; see also Roth v. Salus
Altern . Asset Mgmt . LP , 124 F . Supp . 3d 315 , 317
(S . D. N. Y.
2015) . Under Section 16(b) , " there is , in effect , a conclusive
presumption that the insider traded on the basis of inside
information when conducting a short-swing transaction .
[I]ssues of scienter , materiality , reliance and causation .
are irrelevant ." Peter L . Romeo and Alan L . Dye , Section 16
Treatise and Report ing Guide (4th ed . 2012)
Dye " )
9 . 0l[b] .
Therefore , the test for liability under Section 16(b)
has no scienter component . Instead , the plaintiff must prove
" that there was
(1) a purchase and (2) a sale of securities (3)
by an [insider]
(4) within a six-month period ." Chechele v .
758 F . 3d 463 , 467
(2d Cir . 2014)
(quoting Gwozdzinsky ,
156 F . 3d at 308) .
It is undisputed that Liberty , as a benefic i al owner
of more than 10 % of Live Nation equity , was a statutory
" insider " for purposes of Section 16(b) . See Mot . to Dismiss at
5-6 (setting out the Gwozdzinsky test for Section 1 6(b) and not
contesting the "in sider " prong) . The issues remaining are
whethe r there was a purchase and a sale of securities by Liberty
within a six-month period.
According to Plaintiff , on September 28 , 2015
the initial hedging period ended) , the Forward Contract
established a " call equiva l ent " derivative position because on
that date, the number of shares and the purchase price became
fixed . Compl . i i 16 - 18. Plaintiff alleges that the " call
equiva l ent " derivative pos i tion co n sisted of two distinct
derivative positions :
(1) a long call option position ,
representing Liberty ' s right to purchase , or " ca l l ", u p to 15 . 9
million Live Nation shares , and (2) a short put option position ,
representing Liberty ' s obligation to purchase those shares (and
the Bank ' s corresponding right to sell , or " put ", the sha r es to
Liberty) . Id .
2 , 19 . Plaintiff also a l leges that l ong and
short positions simultaneously closed when the Forward Contract
expired on November 27 , 2015 , the call option having been
exercised and the put having expired unexercised because the
settlement resulted in an effective payout to Liberty . Id .
Plaintiff argues that the expi r ation of the short
option component to Liberty ' s call equivalent derivative
position on November 27 , 2015 constitutes a nonexempt Section
16(b) transaction that can be matched wit h i ts establishment on
September 28 , 2015 , giving rise to short swing profits under SEC
Rule 16b - 6(d) . Id .
According to Liberty , the contrac t at iss u e was a
standard forward contract , entered into on September 4 , 20 1 4 and
settled more than one year later , for the purchase of Live
Nation shares that resulted in an actua l purchase of those
shares and did not establish two distinct derivative positions
for Liberty. In addition , Liberty argues that any hypothetical
put option did not expire unexercised or within six months of
its writing , Liberty did not recognize any prof it, and the r e was
no opportunity for speculative abuse .
The Within Six Months Requirement Has not Been Met
Although courts have analyzed Forward Contracts under
Section 16(b) , none has held an insider liable under the statute
for settling a Forward Contract more than six months after
entering into it. In each case , the court granted the
defendant ' s motion to dismiss because , as a matter of law , the
transactions did not constitute both a purchase and sale of
securities within less than six months , as required by Section
In Chechele v . Sperling , two insiders entered into
five " prepaid variable forward contracts " through which the
insiders agreed to sell up to a specified maximum number of
shares of their company ' s stock to an unaffiliated bank
counterparty . 758 F . 3d at 465 - 66 . The forward contracts were
"variable" because the ultimate number of shares the insiders
would sell , and the ultimate price the insiders would receive
for the shares , varied depending on the market price of the
shares on the maturity dates . Id. at 465 . The forward contracts
were " prepaid " because the insiders received payments at the
time the forward contracts were signed , even though they had
pledged the maximum number of shares to the bank counterparty
without transferring title . Id . Years after entering into the
forward contracts , the parties settled the contracts in
accordance with the contractual formulas . Id . at 466 - 67 . In each
case , the insider delivered less than the maximum number of
shares pledged to the bank counterparty , with the remaining
pledged shares returned to the insider . Id . The plaintiff argued
that the settlement of each forward contract resulted in a
Section 16(b) purchase of the returned shares that could be
matched with open - market sales of shares by the insider during
the six months before or after the settlement date of the
contract . Id . at 467 .
Reject ing this argument , the district court granted
the insiders ' motion to dismiss for failure to state a Section
16(b) claim . Chechele v . Sperling , No. 11 Civ . 0146 , 2012 WL
1038653 (S . D. N. Y. Mar . 29 , 2012) . The district court concluded
that because the insiders '
rights became " fixed and irrevocable "
at the time they entered into the prepaid variable forward
contracts , "the repurchases of the [insiders '] retained shares
on the settlement date did not constit u te a
' purchase '
[s]ection 16(b) ." Id . at *5 . The Second Circuit affirmed.
Sperling , 758 F . 3d at 465 .
Donoghue v. Patterson Companies , Inc . involved the
same type of forward contract and a Section 16(b) claim ,
centering on the issue of whether returned shares constituted a
purchase under Section 16(b) . 990 F . Supp . 2d 421 , 423-24
(S . O. N. Y. 2013) . Like the court in Sperling , the court in
Patterson Companies granted the insider ' s motion to dismiss for
failure to state a claim under Section 16(b) . Id . at 425 - 27 . The
court held that "the transact i on [was] exempt from Section 1 6(b)
liability at settlement [because] the insider [was]
irr evocab l y
obligated to settle [the] transaction at a certain date and have
the price calculated by a pre - set formula ." Id . at 426 .
Donoghue v . Murdock also involved a variable forward
contract and the court also granted the defendants ' motion to
dismiss . No . 13 CIV . 1224 PAE , 2013 WL 4007565 , at *1
(S . O. N. Y.
Aug . 6 , 2013) . The plaintiff argued that the insider ' s decision
to turn over shares on the settlement date const i tuted a Section
16(b) sale that cou ld be matched with purchases of shares made
by the insider outside of the forward contract withi n six months
of the settlement date of the contract . Id . The court h eld that
the insider ' s sale of stock occurred , for section 16(b)
purposes , on the date the insider entered into the forward
contract because " [the insider ' s] obligations were fixed and
irrevo cable " as of that date . Id . at *9 .
Donoghue v . Centillium Communications ,
Inc . involved
facts and allegations similar to those in Murdock. No . 05
CIV .4 082(WHP) , 2006 WL 775122 , at *1 (S . D.N.Y. Mar. 28 , 2006)
The pla in tiff alleged that the insider ' s transfer of all pledged
shares at the settlement of the Forward Contract constituted a
Section 16 (b)
sale . Id . at *4 . The court d i smissed the
complaint , concluding that the relevant transaction took place
at the inception of the forward contract - more than three years
ear l ier - and that any opportunity to manipulate the transaction
based on inside information was present only at the contract ' s
inception . Id . at *5.
The unifying principle in these cases is that where an
insider has had " no opportunity to speculate on the basis of
inside information ," Section 16(b) has not been violated .
Sperling , 2012 WL 1038653 , at *5 , aff ' d , 758 F . 3d 463
(2d Cir .
2014) ; see also Senate Comm . on Banking & Currency , Stock
Exchange Practices , S . Rep . No . 1455 , 73d Cong ., 2d Sess . at 68
(Section 16 was enacted to prevent corporate insiders
from using non - public information to " speculate in the stock of
the corporations to wh i c h they owe a f i duc i ary duty " ) .
Here , Liberty entered into the Forward Contract with
the Bank on September 4 , 2014 , and the contract settled more
than a year later , on September 28 , 2015 . The Forward Contract
is the same type of derivative analyzed in Sperling , 1 and the
Second Circuit ' s holding in that case applies : If the quantity
and price of the shares subject to a forward are determined by
formulas in the contract , the " purchase " or " sale " is deemed to
have occurred for Section 16(b) purposes when the contract was
executed , not when the final quantity and price become known .
See Sperling , 758 F . 3d a t
465-66 . Because Liberty was
irrevocably obligated to settle the transaction on a date more
Although the prior cases discussed above involved insiders who
sold - rather than purchased - stock of their companies via a
variable forward contract , this is merely a reversal of the
insiders ' roles with those of the bank counterparties and does
not require a different analysis or result .
than six months after entering into the transaction , and at a
price determined by a formula in the contract , Liberty had no
opportunity to speculate on the basis of its insi der
information , and Liberty ' s transaction is exempt from Section
The Plaintiff construes Liberty ' s Forward Contract as
t wo option positions , in a similar argument to the one that was
rejected in Sperling . Plaintiff contends that the two option
positions were established on September 28 , 2015 and expired on
November 27 , 20 15; Liberty ' s transact i on falls with in the sixmonth window , according to Plaintiff , because the price was
" first fixed" on September 28 , 2015 and the physical settlement
occurred 60 days later . Resp. Br . at 13 ; Compl.
25 . This
characterization of the Forward Contract is incorrect in light
of Sperling . " The transactions to be matched [in a case
involving a forward like this one] are not the ' fixing '
price shortly before settlement and the settlement itself , but
the writing of the contract and the settlement." Id . at 471 .
Even if "the number of shares that may be [purchased] and the
price of those shares is not known at the time [a forward]
contract is written ," if " the price [is] set by a predetermined
formula ," there is " no opportunity for additional manipulation
after the contract is signed ." Id . at 470 .
Suggesting that the collar features of the Sperling
prepaid variable forward contracts distinguish them from
Liberty ' s Forward Contract in determining which transactions to
match , Plaintiff claims that each forward contract in Sperling
provided an initial fixed price range
(i . e ., a collar) that was
subsequently adjusted based on events outside the ins i der ' s
control , whereas the sole price term in Liberty ' s contract was a
floating formula to be determined based on events inherently
unknown to the parties at the time of execution . Resp . Br . at
11 . What the Second Circuit relied on for its transaction matching holding in Sperling was not the inclusion of collars in
the forward contracts , but rather the inclusion of pricing
formulae in those contracts ; the court stated that " [b]ecause
the parties are bound to the formula and dates from the time of
contracting , the prices of these [prepaid variable forward
contract] options were fixed at the time they entered the
contract even if they are not known ." Id . Here , too , the forward
price was fixed by formula when Liberty entered into the forward
even though it was not known what the price would turn out to be
as a dollar figure .
Even assuming Liberty had established both a long ca l l
option position and a short put option position on September 28 ,
2015 , it would not be liable under Section 16(b) because both
positions would have been exercised more than six months after
their establishment on September 4 , 2014 . As a matter of law ,
the exercise of a derivative security is exempt from Section
16(b) , and transactions falling outside the six -mo n th window are
not subject to Section 16(b) liability .
Further , Plaintiff ' s claim that the Forward Contract
established two options - a call option for Liberty and a put
option for the Bank - cannot create Section 16(b)
liability . If
Liberty had a call option and the Bank had a put option , then
both options had the same strike price and both parties
exercised their options on the settlement date , with Liberty as
purchaser and the Bank as seller . Because the hypothetical
options had the same strike price and Liberty paid that price in
return for the Live Nation shares , there is no basis to hold
that one option was exercised but not the other . If one was
exercised then so was the other , and vice - versa , which would
have resulted in an exempt acquisition by Liberty under SEC Rule
16b - 6(b) . Plaintiff cannot construct hypothetical option
positions and then choose which one was exercised to try to
create Section 16(b) liability where none would otherwise exist .
The Bank ' s hypothetical exercise of its hypothetical put option
is a " non-event " as a matter of law . Sperling , 758 F . 3d at 469
(quotations omitted) . Because the Bank ' s hypothetical put option
would not have expired unexercised , it cannot be matched with
Liberty ' s alleged writing of that option to create liability
under section 16(b) .
Under the reasoning and holding set forth in Sperling ,
the within six months requirement of Section 16(b) is not met
and no liability can attach .
No Profit Has Been Realized
The Plaintiff has conceded that Liberty has not sold
any Live Nation stock purchased in the challenged transaction .
Plaintiff acknowledges that only way a Section 16(b) claim can
be sustained here is by viewing the Forward Contract as a
hypothetical call option and a hypothetical put option ,
established on September 28 , 2015 . As set forth above , Sperling
does not comport with this view of the Forward Contract .
Cour ts have cautioned against recasting an act u al
transaction into something a plaintiff hypothesizes it could
have been in order to create liabi l ity under Section 1 6(b) . See
Olagues v . Icahn , No . 1 : 15-CV- 0898 - GHW , 2016 WL 1178777 , at *11
(S . D. N. Y. Mar . 23 , 20 16) , appeal pending , No . 16 - 1255 (2d Cir . )
(" As outlined above , Plaintiff ' s theory rests on the
fragmentation of Defendants ' transaction int o two hypothetical
separate transactions , and the subsequent revaluation of those
component parts . That is unsteady ground . Courts have long
' recast[ing] the actual transaction into
[plaintiff ' s] hypothetical one in order to create liability
1 6 (b) . '" )
(quoting Portnoy v . Memorex Corp ., 667 F . 2d
1281 , 1283 (9th Cir . 1982)) . In particular , courts have rejected
plaintiffs ' attempts " to fragmentize " transactions into
hypothetical component parts to try to establish section 16(b)
liability where it would not otherwise exist . See Schur v .
Salzman , 365 F . Supp . 725 , 730
(S . D. N. Y 1973) .
Plaintiff claims that " Liberty is strictly liable for
the maximum recoverable ' premium received for writing the
, unless Liberty demonstrates lesser actua l
' profits realized .'" Resp . Br . at 20 . Plaintiff then calculates
Liberty ' s purported actual profits as described above -
excess value of the 15 . 9 million shares Liberty received on the
settlement date, over the fixed purchase price Liberty paid for
the shares ," equaling $4 , 062 , 450. Resp. Br . at 21 . Plaintiff has
c ited no authority for this interpretation of "profit" in
Section 16(b) or SEC rules and there is contrary authority.
Plaintiff ' s contention that Liberty profited from the
transaction is not supported by SEC Rule 16b - 6(d) , the rule
relied on by Plaintiff to allege that Liberty is liable under
Section 16(b) . Rule 16b-6(d) provides:
. expiration of an option within six months
of the writing of the option , any profit derived from
writing the option [is] recoverable under section
16(b) . The profit shall not exceed the premium
received for writing the option.
17 C .F. R.
240 . 16b-6(d).
Rule 16b - 6(d) "is designed to prevent a scheme whereby
an insider with inside information favorable to the issuer
writes a put option , and receives a premium for doing so ,
S & S Realty Corp . v . Kleer-Vu Indus ., Inc. , 575 F.2d 1040,
1043-44 (2d Cir . 1978) ("[P]r ofit [is] an excess of returns over
expenditures in a transaction or series of transactions ." )
(quotations and citations omitted)) ; Heli-Coil Corp . v . Webster ,
352 F.2d 156 , 167 (3d Cir. 1965) (profit is "the excess of the
price received over the price paid for goods sold " ) ; Olagues ,
2016 WL 1178777 , at *13 ("profit" is the "excess of revenues
over expenditures in a business transaction" (quotations and
citations omitted)) .
knowing , by virtue of his inside information , that t h e opt i on
will not be exercised within six months ." Gwozdzinsky , 156 F. 3d
at 309 . Under the plain language and purpose of Rule 1 6b - 6(d) ,
where an insider receives no premium for writing an alleged
option , there is no profit to be disgorged .
There is only one measure of profits under Rule 16b 6(d) recognized in the case law : The amount of the premium the
purchaser of the option paid the insider for the option . See
Allaire Corp . v . Okumus , 433 F . 3d 248 , 252
(2d Cir . 2006)
("[ I ] f
an insider writes an option that expires unexercised within six
, the writer will be held liable under section
16(b) for the amount the purchaser paid him or her for the
option. " ) . Here , that amount is zero even under Pl aint i ff ' s v i ew
of the Forward Contract as estab l ishing two options .
Plaintiff also contends that Liberty is liable for the
"premium received for writing the [alleged] option ," which
Plaintiff claims is equal to " the value of the consideration
Li berty received from the Bank in exchange for the put that
Liberty sold [the Bank] ." Resp . Br . at 2 1. 3 A " premium" is what
Citing the bid and ask prices of exchange-traded Live Nation
call options on September 28 , 2015 , Plaintiff claims that
Liberty ' s purported call option was worth $17 , 490 , 000 , and ,
" the purchaser paid [the option writer] for the option ."
Allaire , 433 F . 3d at 252 . Liberty was the buyer , not the seller ,
in this transaction. The Bank paid nothing to Liberty . Nor was
" the sole consideration .
exchanged by the parties
optio ns that each [purportedly] purchased and sold under the
[f]orward ." Resp . Br . at 23 . In return for the Live Nation
shares , Liberty paid the Bank the forward price , which inc lu ded
a commi ssi on , the Bank ' s funding costs , a contractually agreed
spread , and interest . Liberty Schedule 13 - D, Dkt. #33 - 1.
In any event , no precedent supports interpreting Rule
16b - 6(d) to req u ire an insider to reimburse the " consideration
received " for writing an alleged option instead of the " premium
received ." 17 C.F . R.
240.16b - 6(d) . As Plaintiff concedes , the
only authority on point is to the contrary . See Olagues , 2016 WL
1178777 , at *13 ; Resp . Br. at 22 .
thus , Liberty received $17 , 490 , 000 in consideration for
allegedly selling the bank a put option . Resp . Br . at 21-22 .
These allegations do not appear in the Complaint . Plaintiff
cannot amend his Complaint by asserting new facts or theories
for the first time in opposition to Liberty ' s motion to dismiss .
See K . D. e x rel . Duncan v . White Plains Sch . Dist ., 921 F . Supp .
2d 197 , 209 (S . D. N. Y. 2013) .
Finally , Plaintiff ' s theory freezes the unrealized
value on the settlement date , ignoring the fact that if the
price of Live Nation stock went down after that day , the
unrealized value would disappear . See Olagues , 2016 W 1178777 ,
at *13 . Liberty bought the Live Nation shares for $24 . 9345 per
share . After the physical settlement , Live Nation ' s stock price
dropped . Over the next six months Live Nation ' s stock price
closed above $24.9345 only a few times , dropping as low as
$19 . 36 . A hypothetical future sale by Liberty would not
necessarily result in a profit to Liberty .
For the reasons stated above , the Liberty ' s motion to
dismiss is granted . Because it is a nominal defendant , and
Liberty ' s motion to dismiss has been granted , Live Nation ' s
motion to dismiss is granted .
It is so ordered .
New York, NY
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