Federal District Court Finds that Plaintiff did not Adequately Plea ‘Shareholder Ground’ under the Securities Exchange Act

By Lewis Tesser, Partner, and Timothy Nolen, Associate

A recent opinion from the United State District Court for the Southern District of New York considered whether a plaintiff adequately pled the existence of a “shareholder group” under the Securities Exchange Act. The case concerned issues of pleadings, business litigation, securities litigation and federal practice.

The case, Chechele v. Scheetz, 2011 U.S. Dist. LEXIS 97489 (S.D.N.Y. August 30, 2011), involved a shareholder who filed suit against a defendant CEO, alleging short-swing trading in breach of the defendant’s fiduciary duty. The plaintiff alleged that she was a member of a “shareholder group” which owned more than 10% of the corporation’s stock and that the “shareholder group” arose out of a series of express or implied agreements. Judge Sullivan, however, rejected this argument, noting that the plaintiff’s pleadings did not contain enough factual matter to suggest that an agreement was actually made to support the creation of a “shareholder group.” Therefore, having failed to meet the “shareholder group” standard, the Court dismissed the suit.

At Tesser, Ryan & Rochman, our attorneys’ experience with business and corporate law allows us to identify issues of standing and advice our clients of the most effective way to proceed.