Cummins v. Suntrust Capital Markets, Inc., 07 Civ. 4633(JGK).

• Court: United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
• Citation: 649 F.Supp.2d 224
• Docket Number: No. 07 Civ. 4633(JGK).,07 Civ. 4633(JGK).
• Parties: Robert P. "Skip" CUMMINS, Plaintiff, v. SUNTRUST CAPITAL MARKETS, INC., et al., Defendants.
• Decision Date: 20 August 2009

649 F.Supp.2d 224 Robert P. "Skip" CUMMINS, Plaintiff,
v.
SUNTRUST CAPITAL MARKETS, INC., et al., Defendants. No. 07 Civ. 4633(JGK). United States District Court, S.D. New York. August 20, 2009.

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Alan Heblack, Paul Felix Millus, Snitow Kanfer Holtzer & Millus LLP, New York, NY, Ashton Carlo Bachynsky, Julius Glickman, Glickman & Hughes, L.L.P., Houston, TX, for Plaintiff.

Nelson Andrew Boxer, Alston & Bird, LLP, New York, NY, Judson Graves, Robert R. Long, Alston & Bird, LLP, Atlanta, GA, for Defendants.

Opinion and Order

JOHN G. KOELTL, District Judge.

This is an action for defamation arising out of two analyst reports and related statements to the media criticizing the issuance of certain options to Robert P. "Skip" Cummins, the former Chief Executive Officer ("CEO") of Cyberonics, Inc. ("Cyberonics"), and other Cyberonics executives. The gist of the analyst reports and related statements was that the option grants were timed to exploit information favorable to Cyberonics that ordinary shareholders of the company could not exploit. The analyst reports and related statements characterized the option grants as unethical and self-interested, and compared them in effect to illegal backdating.

Mr. Cummins (the "plaintiff") brings this litigation against the authors of the analyst reports, Amit Hazan and Jonathan Block, and their employer, SunTrust Capital Markets, Inc. (the "defendants"), alleging that the analyst reports contained defamatory statements and were defamatory as a whole, and that related statements made by defendant Hazan to the media were defamatory. The defendants move for summary judgment.

I

The standard for granting summary judgment is well established. Summary judgment may not be granted unless "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Gallo v. Prudential Residential Servs. Ltd. P'ship, 22 F.3d 1219, 1223 (2d Cir.1994). "[T]he trial court's task at the summary judgment motion

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stage of the litigation is carefully limited to discerning whether there are genuine issues of material fact to be tried, not to deciding them. Its duty, in short, is confined at this point to issue-finding; it does not extend to issue-resolution." Gallo, 22 F.3d at 1224. The moving party bears the initial burden of informing the district court of the basis for its motion and identifying the matter that it believes demonstrates the absence of a genuine issue of material fact. Celotex, 477 U.S. at 323, 106 S.Ct. 2548. The substantive law governing the case will identify those facts that are material and "only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

Summary judgment is appropriate if it appears that the non-moving party cannot prove an element that is essential to the non-moving party's case and on which it will bear the burden of proof at trial. See Cleveland v. Policy Mgmt. Sys. Corp., 526 U.S. 795, 805-06, 119 S.Ct. 1597, 143 L.Ed.2d 966 (1999); Celotex, 477 U.S. at 322, 106 S.Ct. 2548; Powell v. Nat'l Bd. of Med. Exam'rs, 364 F.3d 79, 84 (2d Cir. 2004). In determining whether summary judgment is appropriate, a court must resolve all ambiguities and draw all reasonable inferences against the moving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (citing United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 8 L.Ed.2d 176 (1962)); see also Gallo, 22 F.3d at 1223. Summary judgment is improper if there is any evidence in the record from any source from which a reasonable inference could be drawn in favor of the nonmoving party. See Chambers v. T.R.M. Copy Ctrs. Corp., 43 F.3d 29, 37 (2d Cir. 1994). If the moving party meets its initial burden of showing a lack of a material issue of fact, the burden shifts to the nonmoving party to come forward with "specific facts showing a genuine issue for trial." Fed.R.Civ.P. 56(e)(2). The non-moving party must produce evidence in the record and "may not rely simply on conclusory statements or on contentions that the affidavits supporting the motion are not credible." Ying Jing Gan v. City of New York, 996 F.2d 522, 532 (2d Cir.1993); see also Scotto v. Almenas, 143 F.3d 105, 114-15 (2d Cir.1998); Singh v. New York City Off-Track Betting Corp., No. 03 Civ. 5238, 2005 WL 1354038, at *1 (S.D.N.Y. June 8, 2005).

II

The following facts are undisputed unless otherwise indicated.

At the time of the analyst reports and the related statements to the media at issue in this case, defendants Hazan and Block were equity research analysts at SunTrust Capital Markets, Inc. ("SunTrust"), a subsidiary of a bank holding company. (Defendants' Local Rule 56.1 Statement of Material Facts ("Defts.' 56.1 Stmt.") ¶ 25; Plaintiff's Local Rule 56.1 Statement of Material Facts ("Pl.'s 56.1 Stmt.") ¶ 25.) In their capacity as analysts at SunTrust, defendants Hazan and Block wrote analyst reports about the companies they covered. (Defts.' 56.1 Stmt. ¶ 25; Pl.'s 56.1 Stmt. ¶ 25.) One of those companies was Cyberonics, a company that designs, develops and markets implantable medical devices for the treatment of patients with chronic illnesses who have not responded to traditional drugs and therapies. (Defts.' 56.1 Stmt. ¶ 27; Pl.'s 56.1 Stmt. ¶ 27.)

In 2006, defendants Hazan and Block were asked by their supervisor at SunTrust, Rick Inskeep, to investigate the companies they covered for improper option grants. (Defts.' 56.1 Stmt. ¶ 26; Pl.'s

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56.1 Stmt. ¶ 26.) On June 8 and June 12, 2006, SunTrust published two analyst reports written by defendants Hazan and Block on the subject of certain option grants at Cyberonics. (Pl.'s Exs. 1 & 2.) The core facts surrounding those options grants are not in dispute. On June 14, 2004, Cyberonics' stock price at the close of trading was $19.58. (Defts.' 56.1 Stmt. ¶ 29; Pl.'s 56.1 Stmt. ¶ 29.) On June 15, 2004, NASDAQ trading in Cyberonics stock was suspended for the entire day. June 15, 2004 was the date of a Food and Drug Administration ("FDA") panel proceeding concerning a therapy for depression developed by Cyberonics. Late in the day, the panel voted to recommend the therapy. (Defts.' 56.1 Stmt. ¶ 30; Pl.'s 56.1 Stmt. ¶ 30.) That same evening, while trading was still suspended, Cyberonics held a previously scheduled board meeting. (Pl.'s 56.1 Stmt. ¶ 31; Tr. 35-36.)¹ At that meeting, after the plaintiff excused himself from the meeting, the Cyberonics board of directors granted 150,000 stock options to the plaintiff and 100,000 stock options to other executives they considered responsible for the positive panel recommendation. (Defts.' 56.1 Stmt. ¶ 31; Pl.'s 56.1 Stmt. ¶ 31; Tr. 35.) The plaintiff was informed that same evening of the award of stock options to him and to the other executives. (Tr. 35; Pl.'s Apr. 14, 2009 Letter Br. ¶ 2 ("The fact that Mr. Cummins was told after the June 15, 2004 board meeting that he was granted options and that he knew the stock price would go up by some amount ....").) The plaintiff was also given the responsibility of allocating the 100,000 stock options granted to the other executives among those executives. (Defts.' 56.1 Stmt. ¶ 31; Pl.'s 56.1 Stmt. ¶ 31.)

All of the stock options issued on June 15 carried the June 14 closing price of $19.58. (Defts.' 56.1 Stmt. ¶ 32; Pl.' 56.1 Stmt. ¶ 32.) The June 14 closing price was the most recent closing price because trading was suspended on June 15. The plaintiff knew, on the evening of June 15, that Cyberonics stock would rise the next day due to the favorable FDA panel recommendation. (Pl.'s Apr. 14, 2009 Letter Br. ¶ 2.) The share price did rise the next day by 78%, closing at $34.81. The value of the plaintiff's options, which had not yet vested,² increased by approximately $2.3 million. (Defts.' 56.1 Stmt. ¶ 33; Pl.'s 56.1 Stmt. ¶ 33.)

The circumstances of the June 15, 2004 option grants formed the primary subject of the June 8 and June 12, 2006 analyst reports written by defendants Hazan and Block and published by SunTrust. (Pl.'s Ex. 1 & 2.) The subject heading of the June 8 analyst report was: "CYBX: Moving to Neutral on Option Grant Concerns & Reimbursement Delays." (Pl.'s Ex. 1.)³ The June 8 report indicated at the outset that the authors were lowering their rating on Cyberonics from "buy" to "neutral" because "the company's stock option grants in 2004 may face meaningful scrutiny in the current environment surrounding option grants ...." The report contained a brief "Summary" section that was a summary and preview of a longer "Comments" section that developed everything that was included in the "Summary" section. The report characterized the June 15, 2004 option grants at Cyberonics as "unusual activity." The authors presented the following

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information in a section of "facts" at the beginning of the "Comments" section:

1. June 14th, 2004—the stock closed at $19.58.

2. June 15th, 2004—the stock was halted for the entire day during FDA Panel proceedings for VNS therapy for depression (which resulted in a positive recommendation at about 4 p.m.).

3. June 15th (evening), 2004—stock options were issued to three executives (immediately following the Panel decision), during a board meeting held that night. Skip Cummins (CEO) received an option grant of 150,000 shares, and Richard Rudolph (VP, CMO) and Alan...