Morrison v. Eminence Partners II, L.P.
714 F. App'x 14
| 2d Cir. | 2017Background
- Plaintiff Larry Morrison filed a §16(b) suit seeking disgorgement of short-swing profits by Eminence arising from trades in The Men’s Wearhouse, Inc. stock.
- Before Morrison filed suit, Men’s Wearhouse shareholders exchanged their Men’s Wearhouse shares for shares in a new parent holding company, Tailored Brands (a reorganization completed Jan. 31, 2016).
- At the time Morrison filed his complaint, he owned Tailored Brands shares, not Men’s Wearhouse shares.
- The district court dismissed the complaint for lack of statutory standing, concluding Morrison did not hold securities of the actual issuer (Men’s Wearhouse) when the action was instituted.
- On appeal the Second Circuit reviewed dismissal de novo and affirmed, focusing on whether ownership of parent-company stock can confer §16(b) standing for trades in a subsidiary issuer.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a §16(b) plaintiff must own securities of the actual issuer at the time the action is instituted | Morrison: Gollust’s statements are dicta; parent-company stock should suffice or the §16(b) claim transferred as an asset to successor | Eminence: Gollust controls; plaintiff must own issuer’s securities at filing; parent/subsidiary are distinct | Held: Plaintiff lacked statutory standing because he owned parent-company stock, not issuer stock, when suit was filed; dismissal affirmed |
| Whether Gollust’s language excluding parents from “issuer” is binding | Morrison: That language was dictum in Gollust and not controlling here | Eminence: Gollust is binding precedent, integral to its decision | Held: Court treated Gollust’s statements as part of its holding and binding; parent not within definition of issuer |
| Whether successor-issuer or claim-transfer doctrines allow standing | Morrison: Reorganization transferred the §16(b) asset/claim to Tailored Brands; Rule 414 supports successor treatment | Eminence: Rule 414 and cited precedents do not create §16(b) standing for parent; precedent limits successor-issuer exception | Held: Successor-issuer/claim-transfer arguments fail; Men’s Wearhouse remained a viable issuer and successor rules do not confer standing |
| Whether reorganizational timing was fraudulent to defeat standing | Morrison: Reorganization was a fraudulent effort to deprive him of standing within the 60-day waiting period after demand | Eminence: No plausible factual support; public disclosures preceded demand | Held: Fraud allegation was conclusory and implausible; court declined to apply a fraud exception absent factual support |
Key Cases Cited
- Gollust v. Mendell, 501 U.S. 115 (Sup. Ct. 1991) (holding “issuer” means the corporation that actually issued the security and does not include parent corporations)
- Lowinger v. Morgan Stanley & Co. LLC, 841 F.3d 122 (2d Cir. 2016) (standards for reviewing §16(b) pleadings and dismissal)
- Olagues v. Icahn, 866 F.3d 70 (2d Cir. 2017) (describing §16(b)’s purpose to prevent insiders’ short-swing profits)
- Iqbal v. Hasty, 490 F.3d 143 (2d Cir. 2007) (distinguishing holding from dictum and discussing when a proposition is integral to decision)