105 F.4th 46
2d Cir.2024Background
- Brad Packer, a shareholder of 1-800-Flowers.com, brought a derivative suit under Section 16(b) of the Securities Exchange Act against Raging Capital Management, alleging they made profits from short-swing trading as 10% beneficial owners.
- Section 16(b) requires 10% beneficial owners to disgorge any profits from buying and selling the company’s stock within a six-month period.
- The District Court dismissed Packer’s case for lack of constitutional standing, relying on the Supreme Court’s decision in TransUnion LLC v. Ramirez to argue that Packer had not suffered a concrete injury.
- Packer appealed, arguing that the Second Circuit’s prior decision in Donoghue v. Bulldog Investors remains controlling and that he has constitutional standing.
- The Second Circuit was required to determine whether TransUnion abrogated its prior ruling in Donoghue regarding constitutional standing in Section 16(b) actions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a violation of Section 16(b) of the Exchange Act inflicts a concrete injury sufficient for constitutional standing | Packer: Donoghue remains good law; Section 16(b) statutory breach of fiduciary duty is a concrete injury | Raging: TransUnion overruled Donoghue, no concrete injury alleged, mere risk insufficient | Donoghue remains good law, Section 16(b) breach is concrete injury, standing exists |
| Whether TransUnion LLC v. Ramirez abrogated Donoghue | Packer: TransUnion did not abrogate Donoghue; historical analogue supports standing | Raging: TransUnion clarified standing, mere statutory violation not enough, no injury | TransUnion did not abrogate Donoghue; historical analogy (breach of fiduciary duty) supports standing |
| Whether the District Court erred by disregarding Second Circuit precedent (Donoghue) | Packer: District Courts must follow binding Circuit precedent absent clear Supreme Court abrogation | Raging: District Court properly predicted Circuit precedent would be overturned | District Courts must follow precedent; District Court erred by preemptively declaring precedent abrogated |
| Whether Section 16(b) creates a legally protected interest giving rise to standing | Packer: Statute creates fiduciary duty, breach gives issuer legal right to profits, creating injury-in-fact | Raging: Must show harm beyond statutory breach, no specific loss claimed | Statutory breach alone suffices for standing; Section 16(b) creates protected interest |
Key Cases Cited
- Donoghue v. Bulldog Investors Gen. P’ship, 696 F.3d 170 (2d Cir. 2012) (holding Section 16(b) inflicts an injury that confers standing)
- TransUnion LLC v. Ramirez, 594 U.S. 413 (2021) (requiring concrete injury for Article III standing, clarifying historical analogue test)
- Spokeo, Inc. v. Robins, 578 U.S. 330 (2016) (setting forth the requirement for concrete injury and historical relationship in standing analysis)
- Klein v. Qlik Technologies, Inc., 906 F.3d 215 (2d Cir. 2018) (reaffirming that Donoghue remained good law post-Spokeo)