Thomas Fleming Quoted in Hedge Fund Law Report on EDNY Dismissing 16(b) Action Against Hedge Fund Adviser for Lack of Standing


Olshan Litigation partner Thomas Fleming provided insight in a Hedge Fund Law Report article (subscription required) about a recent case involving 1‑800‑, Inc. who filed suit against RCM, Raging Capital Master Fund, Ltd. The plaintiff sought to recover short-swing profits the defendants allegedly made trading in the company’s stock. The U.S. Court of Appeals for the Second Circuit ruled that issues of fact existed as to whether the Master Fund was the beneficial owner of company securities for purposes of Section 16(b). The Second Circuit remanded the case to the U.S. District Court, Eastern District of New York for further proceedings. The defendants moved to dismiss the motion for lack of standing and on March 13, 2023, the EDNY granted that motion. They concluded that in the absence of a concrete injury, the plaintiff lacked standing to bring the action. The EDNY said a plaintiff must show that: the plaintiff suffered a concrete injury, which must be actual or imminent – not hypothetical; such injury was likely caused by the defendant; and that injury would likely be redressed by judicial relief. “This is the first court to rule on the application of standing principles to Section 16(b) claims in the wake of TransUnion. An appeal has been filed, and other courts will also likely weigh in,” Tom said. He also explained that the EDNY’s decision illustrates that it may be difficult for a plaintiff to prove a concrete injury to an issuer to support a claim under Section 16(b), noting, “If the decision is affirmed, the standing requirement will reduce the risk of Section 16(b) liability.”


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