Dreiling v. American Exp. Travel Related Services
| Decision Date | 23 July 2004 |
| Docket Number | No. C03-3740Z.,C03-3740Z. |
| Citation | 351 F.Supp.2d 1077 |
| Parties | Thomas R. DREILING, a shareholder of Infospace, Inc., Plaintiff, v. AMERICAN EXPRESS TRAVEL RELATED SERVICES COMPANY, INC., a New York corporation, Defendant. |
| Court | U.S. District Court — Western District of Washington |
Richard E. Spoonemore, Stephen John Sirianni, Sirianni Youtz Meier & Spoonemore, Seattle, WA, for Plaintiff.
Jason C. Vigna, Robert E. Zimet, Skadden Arps Slate Meagher & Flom, New York, NY, Roger D. Mellem, Tim J. Filer, Foster Pepper & Shefelman, Seattle, WA, for Defendants.
This matter comes before the Court on Defendant American Express Travel Related Services Company's Motion to Dismiss the Amended Complaint, docket no. 13. Having considered the briefs in support of and in opposition to the motion, and the oral argument of counsel on Thursday, June 10, 2004, the Court now GRANTS the motion.
This is a shareholder's derivative suit brought by plaintiff Thomas R. Dreiling, a shareholder of InfoSpace, Inc., against defendant American Express Travel Related Services Company, Inc. ("TRS"). Plaintiff seeks to recover "short swing" profits, that is, profits earned within a six month period by the purchase and sale of securities, alleged to have been "realized" by TRS in InfoSpace securities dealings in violation of Section 16(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78p(b). Plaintiff has been an InfoSpace shareholder at all times since his initial purchase of InfoSpace stock on or about December 8, 1999. Am. Compl., docket no. 5, ¶¶ 1, 6. InfoSpace is a nominal defendant.
From January 21, 2000 through May 21, 2001, David C. House served on the Board of Directors of InfoSpace during which period Mr. House was an executive officer of TRS. Id. ¶ 8. TRS deputized Mr. House to represent its interests on InfoSpace's board of directors. Id. ¶ 13.
TRS acquired a substantial amount of InfoSpace common stock as a result of a February 25, 2000 merger of Infospace and a company in which TRS had invested, Prio, Inc. ("Prio"). Id. ¶ 7, Ex. A at 2. The InfoSpace board of directors approved the merger and TRS's accompanying acquisition of InfoSpace stock.1 The amended complaint alleges that "[w]ithin periods of less than six months, [TRS] engaged in a purchase and corresponding sales, and/or sales and a corresponding purchase, of InfoSpace stock." Id. ¶ 10. The demand letter attached to the amended complaint states that the six month period at issue is "from February 25, 2000 through August 24, 2000." Id. ¶ 7, Ex. A at 1.
TRS profited by its purchase and sales, and/or sales and purchase, of InfoSpace stock by engaging in such transactions within six month periods. Id. ¶¶ 12, 15.
TRS failed to report any sales of InfoSpace stock to the Securities and Exchange Commission ("SEC") at any time after February 25, 2000. Id. ¶¶ 7, 11, Ex. A at 2.
By letter dated September 17, 2003, plaintiff "demand[ed] that [InfoSpace's] Board of directors prosecute claims against American Express Company for violations of § 16(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78p(b)" within sixty days. Id. The letter further stated, in part:
American Express Company should be compelled to disgorge the profits it made through the purchase and sales of InfoSpace stock within the six month period from February 25, 2000 through August 24, 2000. At all times throughout this period, American Express Company was subject to the reporting requirements of § 16(a) and the short-swing trading prohibition of § 16(b), by virtue of its representation on the InfoSpace board of directors through its deputy, David C. House. Despite the requirements of § 16(a), American Express Company failed to file Forms 4 throughout Mr. House's tenure on the InfoSpace board, which ran from January 21, 2000 through May 21, 2001.
By letter dated November 14, 2003, InfoSpace notified plaintiff that InfoSpace's Board of Directors did not intend to pursue the alleged claim against American Express Company. Id. ¶ 8; Mellem Decl., docket no. 14, Ex. F.
On November 26, 2003, plaintiff filed a complaint against "American Express Company, a New York Corporation, including its divisions and subsidiaries." Compl. docket no. 1. On December 15, 2003, plaintiff filed an amended complaint against "American Express Travel Related Services Company, Inc." ("TRS"). Am. Compl., docket no. 5.
TRS moves to dismiss plaintiff's amended complaint pursuant to the Federal Rules of Civil Procedure 8(a), 9(f) and 12(b)(6). Rule 12(b)(6), which provides a basis for the dismissal of a complaint for failure to state a claim upon which relief can be granted, see Fed.R.Civ.P. 12(b)(6), must be read in conjunction with Rule 8(a), which requires a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a); United States v. Real Prop., 234 F.Supp.2d 1136, 1137 (C.D.Cal.2002). Rule 12(b)(6) should also be read in conjunction with Rule 9(f), which provides that "[f]or the purpose of testing the sufficiency of a pleading, averments of time and place are material and shall be considered like all other averments of material matter." Fed.R.Civ.P. 9(f).
Under Rule 12(b)(6), a complaint "should not be dismissed unless it appears beyond doubt that plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Van Buskirk v. Cable News Network, Inc., 284 F.3d 977, 980 (9th Cir.2002) (citations omitted); see also Gilligan v. Jamco Dev. Corp., 108 F.3d 246, 249 (9th Cir.1997) (). In deciding a motion to dismiss, the court accepts as true all material allegations in the complaint and construes them in the light most favorable to the plaintiff. See Newman v. Sathyavaglswaran, 287 F.3d 786, 788 (9th Cir.2002); see also Williams v. Gorton, 529 F.2d 668, 672 (9th Cir.1976) (). Courts dismiss claims when the plaintiff alleges "insufficient facts under a cognizable legal claim." Smilecare Dental Group v. Delta Dental Plan of Cal., 88 F.3d 780, 783 (9th Cir.1996).
Section 16(a) of the Securities Exchange Act of 1934 requires "insiders" including directors, officers, and principal stockholders (i.e., those owning more than ten per cent of any class of security) of an issuer to file monthly reports with the SEC regarding their trading activity, noting the amount of equity they own and any changes in ownership. 15 U.S.C. § 78p(a).
"For the purpose of preventing the unfair use of information which may have been obtained by such beneficial owner, director, or officer by reason of his relationship to the issuer," Section 16(b) of the Securities Exchange Act of 1934 prohibits directors, officers and principal stockholders from making short-swing profits from the purchase and sale, or sale and purchase, of securities of the issuer within a six month period. 15 U.S.C. § 78p(b). "[A]ny profit realized by him ... shall inure to and be recoverable by the issuer." Id.
A plaintiff suing under Section 16(b) is ultimately required to show that the defendant: "(1) realized a profit, (2) from a purchase and sale or sale and purchase within a period of less than six months, (3) of an equity security of [the issuer], (4) in a transaction that was not exempt by the rules and regulations of the Securities and Exchange Commission." Citadel Holding Corp. v. Roven, 26 F.3d 960, 963-64 (9th Cir.1994).
TRS argues that plaintiff's amended complaint should be dismissed on five grounds: (1) the amended complaint fails to assert the approximate dates of TRS's alleged sales; (2) the amended complaint provides no basis for tolling the statute of limitations, which has now run; (3) the amended complaint fails to adequately plead insider status; (4) the amended complaint fails to include adequate demand allegations; and (5) the SEC Rule 16b-3(d) exempts TRS from potential Section 16(b) liability. For the reasons outlined herein, the Court rejects the first four grounds for relief but concludes that the fifth ground regarding the SEC Rule 16b-3(d) exemption has merit.
TRS moves to dismiss plaintiff's amended complaint based on plaintiff's failure to set forth the approximate dates on which the alleged sales of InfoSpace stock occurred. TRS attacks for vagueness paragraph 10 of the amended complaint, which alleges that, "Within periods of less than six months, [TRS]2 engaged in a purchase and corresponding sales, and/or sales and a corresponding purchase, of InfoSpace stock." TRS's Mot. Dismiss at 7; Am. Compl. ¶ 10.
TRS overlooks the demand letter attached to the complaint, which specifies that "the purchase and sales of InfoSpace stock [occurred] within the six month period from February 25, 2000 through August 24, 2000." Am. Compl., Ex. A at 1. Documents attached to a plaintiff's complaint are properly part of a court's review as to whether a plaintiff can prove any set of facts in support of its claim. Amfac Mortg. Co. v. Ariz. Mall, 583 F.2d 426, 429-30 (...
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