Feder v. Frost

220 F.3d 29 (2nd Cir. 2000)

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Nature of the Case

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Facts

D is Chairman and CEO of IVAX, a publicly owned corporation. The sole general partner of FNLP (Frost-Nevada Limited Partnership ) is a corporation, all of whose shares are owned by D. D, with FNLP, is the beneficial owner of 12.8% of IVAX's stock. D is also a director of NAVI, whose stock is publicly traded as well. D, with FNLP, owns 17.3% of NAVI's common stock. In addition, D and FNLP are parties to a shareholders' agreement. The combined holdings of the parties to this agreement amount to 50.8% of NAVI's common stock. The parties nominate individuals to NAVI's board of directors and have 'effective control' over NAVI. P is a shareholder of IVAX Corporation and brought the suit derivatively on its behalf. His complaint alleged that D is a statutory insider of IVAX and that D and FNLP (D), a firm controlled by D, are controlling shareholders of North American Vaccine, Inc. (NAVI). During various times D and FNLP purchased IVAX shares and NAVI sold IVAX shares. P claims that Ds must disgorge short-swing profits under Section 16(b) as a result of sales by NAVI of IVAX common stock and purchases by Ds of IVAX stock. P contends that all purchases and sales within six months of each other can be matched to determine profits, if any, by the standards applicable under Section 16(b). Ds moved to dismiss under Fed. R. Civ. P. 12(b)(6) on the ground that he did not 'realize' any profit from the transactions within the meaning of Section 16(b). The district court dismissed. The district court rejected P's argument that Rule 16a-1(a)(2)'s definition of 'beneficial owner' applies to the determination of whether profits from various purchases and sales have been realized for purposes of Section 16(b). The district court held that the Rule 16a-1(a)(2) definition 'is to be used solely for determining whether a person' is a statutory insider and because there was no dispute that Ds are statutory insiders of NAVI, that definition was irrelevant. The court also held that Ds did not realize any profits from NAVI’s sale of IVAX’s stock. P appealed.