Chechele v. Standard General Master Fund L.P.
| Decision Date | 08 July 2021 |
| Docket Number | 20 Civ. 3177 (KPF) |
| Parties | DONNA ANN GABRIELE CHECHELE, Plaintiff, v. STANDARD GENERAL L.P.; STANDARD GENERAL MASTER FUND L.P.; and SOOHYUNG KIM, Defendants, TEGNA, INC., Nominal Defendant. |
| Court | U.S. District Court — Southern District of New York |
Plaintiff Donna Ann Gabriele Chechele brings this action pursuant to Section 16(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), 15 U.S.C. § 78p(b), on behalf of nominal defendant TEGNA, Inc. (“TEGNA”). Plaintiff is a stockholder of TEGNA and alleges that Defendants Standard General L.P. (“Standard General”), Standard General Master Fund L.P. (the “Standard General Master Fund”) and Soohyung Kim (collectively with Standard General and the Standard General Master Fund, “Defendants”) violated the short-swing profits provision of Section 16(b) by engaging in purchases and sales of TEGNA's common stock within a six-month period. Plaintiff seeks disgorgement of any short-swing profits realized by Defendants for the benefit of TEGNA. Defendants now move to dismiss the Amended Complaint for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). For the reasons that follow, Defendants' motion to dismiss is denied.
BACKGROUND[1]
Standard General is an investment adviser registered with the SEC. (FAC ¶ 26). Among other things, Standard General creates funds, including the Standard General Master Fund, to manage the capital of institutions and high-net-worth individuals. (Id.). Standard General serves as the investment manager of the Standard General Master Fund, and in that capacity, invests the Fund's capital according to stipulated investment objectives. (Id. at ¶¶ 11, 26). Soohyung Kim is Standard General's managing partner, chief executive officer, and chief investment officer. (Id. at ¶ 12). Plaintiff alleges that Kim is the Standard General Master Fund's “ultimate decisionmaker.” (Id. at ¶¶ 12, 27-30). Both Plaintiff and Standard General own securities in TEGNA, a publicly held media company. (Id. at ¶¶ 9, 14-15).
On January 15, 2020, Standard General issued a press release announcing its nomination of four candidates - including Defendant Kim - for election to TEGNA's Board of Directors. (FAC ¶¶ 40, 52). Standard General proceeded to launch a proxy contest for its candidates' election on March 13, 2020, by filing a preliminary proxy statement with the SEC. (Id. at ¶ 49). The election was to take place at TEGNA's annual meeting scheduled for April 30, 2020. (Id. at ¶¶ 82, 84). On March 25, 2020, TEGNA's Board of Directors announced that March 20, 2020, had been set as the record date for determining the shareholders entitled to vote at the annual meeting (the “Record Date”). (Id. at ¶ 83; see also Martin Decl., Ex. 7 at 4 (March 25, 2020 Notice of Annual Meeting of Shareholders)). As a result, holders of TEGNA stock at the close of business on March 20, 2020, were entitled to cast one vote per share on each proposal properly presented at the annual meeting, including the election of TEGNA's directors. (FAC ¶ 84).
As of January 15, 2020, Standard General was a beneficial owner of about 9.7% of TEGNA's common stock. (FAC ¶ 16). Of the 21, 124, 315 shares of TEGNA stock Standard General held at this time, 19, 108, 953 were physical shares. (Id. at ¶ 77). The remaining 2, 015, 362 shares took the form of equity swap transactions with various counterparties. (Id. at ¶ 77; see also id. at ¶¶ 70-76 (discussing equity swaps)). The swaps included a physical settlement option, pursuant to which Standard General had the right at any time to settle the swaps by paying off the interest and principal owed to its counterparties and receiving in return the underlying physical shares. (Id. at ¶ 80).
On March 16, 2020, Standard General exercised its contractual right to settle its equity swap transactions and receive delivery of the underlying TEGNA stock. (FAC ¶ 86). Pursuant to this settlement, Standard General received 2, 015, 362 additional shares of TEGNA's common stock on or about March 18, 2020. (Id. at ¶ 87). As a result, as of the Record Date of March 20, 2020, Standard General had the right to direct how 21, 124, 315 physical shares of TEGNA's common stock - or about 9.7% of TEGNA's outstanding shares - would be voted at the annual meeting. (Id. at ¶ 90).
Beginning on March 25, 2020 (perhaps coincidentally, the date on which TEGNA's board announced the Record Date), Standard General began unwinding its physical stock position. (FAC ¶¶ 92, 94). On five successive business days between March 25 and March 31, 2020, Standard General both sold 1, 000, 000 shares of TEGNA stock and separately entered into new equity swap agreements covering an identical number of shares (the “Post-Record Date Transactions”). (Id. at ¶¶ 95-98). Standard General ultimately sold a total of 5, 000, 000 shares of TEGNA stock and entered into swap agreements that could be settled in kind for the exact same number of shares sold. (Id. at ¶ 94).
Following a press release issued by TEGNA on April 1, 2020, regarding the reductions in Standard General's stock position (FAC ¶ 101), Standard General repurchased 4, 591, 164 shares of TEGNA stock in a single block trade (id. at ¶¶ 102-103). Standard General's March and April 2020 transactions are summarized below.
Type of Transaction
Number of Shares
Price per Share
03/18/20
Acquisition of stock upon settlement of swap
2, 015, 362
N/A
03/25/20
Sale of stock
(1, 000, 000)
$12.5852
03/25/20
Entry into swap
1, 000, 000
$12.6000
03/26/20
Sale of stock
(1, 000, 000)
$13.2680
03/26/20
Entry into swap
1, 000, 000
$13.2783
03/27/20
Sale of stock
(1, 000, 000)
$12.9839
03/27/20
Entry into swap
1, 000, 000
$12.9914
03/30/20
Sale of stock
(1, 000, 000)
$10.5788
03/30/20
Entry into swap
1, 000, 000
$10.5883
03/31/20
Sale of stock
(1, 000, 000)
$10.8205
03/31/20
Entry into swap
1, 000, 000
$10.8248
04/02/20
Purchase of stock
4, 591, 164
$11.0750
On April 2, 2020, Plaintiff's counsel sent a demand letter to TEGNA on Plaintiff's behalf, requesting recovery of Standard General's “short-swing profit” realized from its transactions in TEGNA's common stock and derivative securities. (FAC ¶ 147). In an April 14, 2020 letter response, TEGNA informed Plaintiff that it declined to pursue a Section 16(b) claim against Standard General. (Id. at ¶ 148).
TEGNA's annual meeting was held as scheduled on April 30, 2020 (the “Annual Meeting”). (FAC ¶ 150). At the meeting, Standard General voted all 21, 124, 315 of its shares in favor of its preferred slate of nominees for the Board of Directors. (Id. at ¶ 151). Despite Standard General's efforts, TEGNA's stockholders reelected all 12 incumbent directors. (Id. at ¶ 152).
On April 22, 2020, Plaintiff commenced this action with the filing of her Complaint. (Dkt. #1). On June 5, 2020, Defendants filed a letter requesting a pre-motion conference to discuss their anticipated motion to dismiss the Complaint (Dkt. #15), which request Plaintiff opposed (Dkt. #16). Following a pre-motion conference on July 30, 2020 (Minute Entry for July 30, 2020), Defendants filed their initial motion to dismiss the Complaint (Dkt. #20-22). Plaintiff responded with the filing of her Amended Complaint on September 11, 2020. (Dkt. #23). The Court denied Defendants' motion as moot, and set a schedule for briefing on a renewed motion to dismiss. (Dkt. #24).
Pursuant to the Court's scheduling order, Defendants filed their motion to dismiss the Amended Complaint and supporting papers on October 12, 2020. (Dkt. #25-27). Plaintiff filed her opposition brief and supporting papers on November 9, 2020 (Dkt. #28-29), and Defendants filed their reply brief and request for oral argument on November 23, 2020 (Dkt. #30, 31).[2] On May 10, 2021, Defendants submitted a notice of supplemental authority (Dkt. #32), to which Plaintiff responded on May 13, 2021 (Dkt. #33). In an Order issued on May 14, 2021, the Court indicated that briefing on this issue was closed. (Dkt. #34). As such, the motion is fully briefed and ripe for review.
To survive a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), a plaintiff must plead sufficient factual allegations “to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is facially plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A complaint that contains only “naked assertions” or “a formulaic recitation of the elements of a cause of action” does not suffice. Twombly, 550 U.S. at 555. The Court must accept as true all well-pleaded factual allegations in the complaint. See Iqbal, 556 U.S. at 678.
In making Rule 12(b)(6) determinations, courts “may consider any written instrument attached to the complaint statements or documents incorporated into the complaint by reference ... and documents possessed by or known to the plaintiff and upon which [she] relied in bringing the suit.” ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007); accord Goel v. Bunge, Ltd., 820 F.3d 554, 559 (2d Cir. 2016). “Even where a document is not incorporated by reference, the court may nevertheless consider it where the complaint ‘relies heavily upon...
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