Donoghue v. Bulldog Investors General Partnership
2012 U.S. App. LEXIS 20472
| 2d Cir. | 2012Background
- Bulldog Investors General Partnership and Phillip Goldstein appeal a district-court disgorgement judgment in favor of Donoghue on §16(b) short-swing profits from Invesco stock.
- Bulldog, as a >10% Invesco holder, traded Invesco stock in 2009–2010, yielding $85,491.00 in profits.
- Donoghue, an Invesco shareholder, sued after Invesco failed to sue; the suit sought disgorgement of profits under §16(b).
- Bulldog challenged constitutional standing, claiming no injury to Invesco from the short-swing trades.
- District court denied the Rule 12(b)(1) standing challenge, relying on §16(b) and Gollust v. Mendell; the parties later stipulated to judgment while preserving the standing appeal.
- The panel affirmed, holding that §16(b) creates a fiduciary-right injury to the issuer, sufficient for Article III standing in a derivative §16(b) action.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether §16(b) injuries to the issuer support standing | Donoghue contends issuer injury from §16(b) suffices for standing | Bulldog argues no cognizable injury to Invesco from outsider trades | Yes; issuer injury supports standing under §16(b) |
| Whether the issuer’s right to profits from short-swing trades suffices for injury-in-fact | Invesco’s fiduciary-right violation yields injury to the issuer | No direct injury shown to Invesco from outsider trades | Yes; §16(b) creates a legal right that injuries the issuer when insiders trade |
| Whether the standing analysis is controlled by RESPA Edwards-type reasoning | Edwards-like standing applies to statutory rights | Edwards is distinguishable; §16(b) is a fiduciary-duty statute | Edwards distinguishing, §16(b) stands to confer standing |
| Whether this is a derivative action with injury to the real party in interest | Invesco is the real party, injury to issuer suffices | Plaintiff must show injury to issuer, not general public | Issuer injury suffices; derivative-injury analysis satisfied |
Key Cases Cited
- Gollust v. Mendell, 501 U.S. 115 (Supreme Court 1991) (private-right to enforce §16(b) not required for standing; issuer-right suffices)
- Reliance Elec. Co. v. Emerson Elec. Co., 404 U.S. 418 (Supreme Court 1972) (§16(b) flat liability; profits to issuer)
- Gratz v. Claughton, 187 F.2d 46 (2d Cir. 1951) (fiduciary-like duties and trust analogy for §16(b))
- Gratz v. Claughton, 187 F.2d 49 (2d Cir. 1951) (breach of fiduciary duty context; trading by insiders prohibited)
- Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031 (Del. 2004) (widely recognized derivative-injury definition for corporate claims)
- Lujan v. Defenders of Wildlife, 504 U.S. 555 (Supreme Court 1992) (standing requires injury-in-fact, causation, redressability)
- Warth v. Seldin, 422 U.S. 490 (Supreme Court 1975) (statutory rights can create standing if injury is conferred)
- Edwards v. First American Corp., 610 F.3d 514 (9th Cir. 2010) (RESPA standing; overcharge not required; distinguishable from §16(b))