Petition for Writ of Certiorari — Cadian Capital Management, LP, et al., Petitioners v. Terry Klein, et al.

APPENDIX

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APPENDIX A

United States Court of Appeals

for the Second Circuit

Docket No. 17-3218-cv

August Term 2017

Terry KLEIN, derivatively ON BEHALF

OF QLIK TECHNOLOGIES, INC.,

Plaintiff-Appellant,

v.

QLIK TECHNOLOGIES, INC.,

Defendant-Appellant,

v.

Cadian Capital Management, LP,

Cadian Fund LP, Cadian Master Fund LP,

Cadian Gp, LLC, Cadian Capital

Management Gp, LLC, Eric Bannasch,

Defendants-Appellees.

Argued: May 14, 2018

Decided: October 2, 2018

PAUL DENNIS WEXLER (Glenn F. Ostrager, on

the brief), New York, N.Y., for Appellants.

JAMES E. TYSSE, Akin Gump Strauss Hauer &

Feld LLP (Z.W. Julius Chen, Douglas A. Rappaport,

Robert H. Pees, Jessica Oliff Daly, on the brief),

Washington, D.C. for Appellees.

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Before POOLER, LOHIER, Circuit Judges, and

SULLIVAN, District Judge.1

JUDGE RAYMOND J. LOHIER, JR. dissents in a

separate opinion.

POOLER, Circuit Judge:

Appellant Terry Klein brought this suit

derivatively as a shareholder of Qlik Companies. She

alleges that Appellees, referred to collectively as the

‘‘Cadian Group,’’ owned more than ten percent of Qlik

and engaged in ‘‘short-swing’’ transactions in that

stock in 2014, in violation of Section 16(b) of the

Securities Exchange Act. While the action was stayed

for reasons irrelevant to this appeal, Qlik was bought

out in an all-cash merger, causing Klein to lose any

financial interest in the litigation. After the stay was

lifted, the Cadian Group moved to dismiss the action

for lack of standing. Klein moved to substitute Qlik

under Rule 17(a)(3) of the Federal Rules of Civil

Procedure. The District Court for the Southern District

of New York (Ramos, J.) found that Klein’s lack of

standing deprived it of jurisdiction to do anything

other than dismiss the suit and that, in any case, Qlik

could not be substituted under Rule 17 because it had

not made an ‘‘honest mistake’’ when it failed to join the

action earlier.

We disagree. Klein’s personal stake at the outset

of the litigation established her standing. When she

lost her personal stake as the action proceeded, the

only jurisdictional question was whether the case had

1

Judge Richard J. Sullivan, United States District Court

for the Southern District of New York sitting by designation.

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become moot. A district court determining whether a

case has become moot maintains jurisdiction to

determine whether a substitute plaintiff would avoid

that result. Rule 17(a)(3) allows substitution of the

real party in interest so long as doing so does not

change the substance of the action and does not reflect

bad faith from the plaintiffs or unfairness to the

defendants. There is no ‘‘honest mistake’’ requirement

beyond that. The district court should have substituted

Qlik and denied the Cadian Group’s motion to dismiss

for lack of jurisdiction.

Accordingly, we VACATE the district court’s

dismissal of the action for lack of subject matter

jurisdiction and REMAND for substitution of Qlik and

further proceedings consistent with this opinion.

BACKGROUND

Section 16(b) of the Securities Exchange Act

requires corporate insiders, including owners of more

than ten percent of a company’s stock, to disgorge what

are colloquially known as ‘‘short-swing profits,’’ i.e.,

any profits made from buying and selling or selling

and buying within a six-month period a security based

on that company’s stock. 15 U.S.C. § 78p(b). The

statute imposes strict liability on insiders likely to

have access to insider information in order to ‘‘tak[e]

the profits out of a class of transactions in which the

possibility of abuse was believed [by the Congress that

passed it] to be intolerably great.’’ Reliance Elec. Co. v.

Emerson Elec. Co., 404 U.S. 418, 422, 92 S.Ct. 596, 30

L.Ed.2d 575 (1972). Suits under 16(b) can be brought

by the company that issues the relevant stock or, ‘‘if

the issuer shall fail or refuse to bring such suit within

sixty days after request or shall fail diligently to

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prosecute the same thereafter,’’ by any ‘‘owner of any

security of the issuer.’’ 15 U.S.C. § 78p(b).

The Cadian Group allegedly owned more than ten

percent of Qlik and engaged in short-swing

transactions in that stock in 2014. Klein purchased

some of Qlik’s stock and made demand on Qlik on June

11, 2015. Qlik informed Klein that it did not intend to

bring an action, so Klein filed a complaint against the

Cadian Group on October 15.

The case was stayed on November 20 pending

resolution of a motion in a related case brought by the

same plaintiff’s attorneys against the same group of

defendants who apparently engaged in similar

transactions with another company. In the meantime,

a private equity company that is not a party to this

matter bought out Qlik in an all-cash merger. The

agreement was signed on June 2, 2016, and checks

were cut to shareholders on August 22.

On November 11, 2016, the Cadian Group

requested permission to file a motion to dismiss on the

grounds that Klein no longer had standing after selling

her shares in the merger.2 Four days later, Klein

requested permission to file a motion to substitute Qlik

(now under new ownership) under Rule 17(a)(3) of the

Federal Rules of Civil Procedure. The district court

granted the Cadian Group’s motion to dismiss and

2

The Cadian Group also argued that Klein did not have

standing at the inception of the lawsuit, but the district court

(correctly) rejected that argument and it is not at issue on appeal.

See Klein ex rel. Qlik Techs., Inc. v. Cadian Capital Mgmt., LP, 15

Civ. 8140 (ER), 2017 WL 4129639, at *5-6 (S.D.N.Y. Sept. 15,

2017).

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denied Klein’s motion to substitute. Klein, 2017 WL

4129639, at *11. The court reasoned that Klein’s lack

of continuing financial interest in the litigation caused

her to lose standing, which made the case moot. Id. at

*8. According to this logic, Klein’s lack of standing

rendered the court powerless to rule on her motion to

substitute. The district court found in the alternative

that Rule 17(a)(3) does not actually apply to this

situation because Klein did not make an ‘‘honest

mistake’’ in failing to include Qlik as a plaintiff ab

initio. Id. at *10 & n.13. Klein and Qlik timely

appealed.

DISCUSSION

The district court should not have hesitated to

substitute Qlik. It has the constitutional power to

substitute a real party in interest to avoid mooting a

case and Rule 17(a)(3) is an appropriate procedural

mechanism for doing so.

I.

The Jurisdictional Consequence of Klein’s

Loss of a Personal Stake

It is an elementary lemma of constitutional

interpretation that Article III, Section 2 limits the

power of federal courts to adjudicating ‘‘Cases’’ and

‘‘Controversies.’’ In practice this means that the

judicial power to articulate the law extends only to

complaints from parties ‘‘seek[ing] redress for a legal

wrong.’’ Spokeo, Inc. v. Robins, ––– U.S. ––––, 136

S.Ct. 1540, 1547, 194 L.Ed.2d 635 (2016). In civil

matters, federal courts will only hear from plaintiffs

who clearly allege that one or more of a defendant’s

actions led to an ‘‘invasion of [the plaintiffs’] ‘legally

protected interest’ ’’ in a manner that makes it ‘‘likely

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that the injury will be redressed by a favorable

decision.’’ Bhatia v. Piedrahita, 756 F.3d 211, 218 (2d

Cir. 2014) (quoting Lujan v. Defs. of Wildlife, 504 U.S.

555, 560, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992)). We

may, in short, only entertain complaints from a

complainant with a concrete stake—and not just a

‘‘keen interest’’—in the outcome of the litigation.

Hollingsworth v. Perry, 570 U.S. 693, 700, 133 S.Ct.

2652, 186 L.Ed.2d 768 (2013).

We have previously found that there is a case or

controversy in a Section 16(b) case so long as the party

bringing suit is either the corporation that issued the

securities in question or a current security holder of

that corporation. See Donoghue v. Bulldog Inv’rs Gen.

P’ship, 696 F.3d 170, 175 (2d Cir. 2012). At this stage

of the litigation, nobody contests that Klein’s interest

in Qlik at the initiation of the suit and until the

moment of the buyout was sufficient to empower the

district court to hear her Section 16(b) action. The

question in front of us is what that court has the power

to do now that Klein no longer has any financial stake

in Qlik.

The district court concluded that, once Klein was

bought out, it lost all power to do anything but declare

that it no longer had subject-matter jurisdiction. Klein,

2017 WL 4129639, at *10. It reasoned that a

derivative plaintiff in a Section 16(b) action who loses

her stake in the corporation thereby loses her standing

to maintain the action, id., which rendered ‘‘the only

function remaining to the court . . . that of announcing

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[its lack of jurisdiction] and dismissing the cause.’’3

Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 94,

118 S.Ct. 1003, 140 L.Ed.2d 210 (1998) (quoting Ex

parte McCardle, 7 Wall. 506, 514, 19 L.Ed. 264 (1868)).

According to the court below, ‘‘[w]hile it may be true

that courts have distinguished between standing and

mootness, the Supreme Court in analyzing whether a

plaintiff would maintain some continuing financial

stake in a Section 16(b) litigation has indicated that

the applicable doctrine is that of standing.’’ Klein, 2017

WL 4129639, at *7 n.8 (internal quotation marks

omitted).

Reviewing this determination de novo, we hold

that it was erroneous. Cortlandt St. Recovery Corp. v.

Hellas Telecomms., S.à.r.l. 790 F.3d 411, 417 (2d Cir.

2015)(‘‘On appeal from a dismissal under Rule 12(b)(1)

[including on mootness grounds], we review the court’s

factual findings for clear error and its legal conclusions

de novo.’’). The district court’s interpretation of the

relevant precedent is understandable given the

sometimes-incautious way the word ‘‘standing’’ has

been used, but it is mistaken nevertheless. The

consequences of losing a stake in ongoing litigation are

determined not by asking whether the party losing its

stake in the litigation has lost its standing but by

asking whether the action has become moot.

The case-or-controversy limitation on our

jurisdiction, and its focus on parties’ stakes in the

3

Other district courts in this Circuit have analyzed

similar cases similarly under the standing rubric. See, e.g., Clarex

Ltd. v. Natixis Sec. Am. LLC, No. 12 Civ. 0722 (PAE), 2012 WL

4849146, at *3-6 (S.D.N.Y. Oct. 12, 2012).

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action, manifests in three distinct legal inquiries:

standing, mootness, and ripeness. Only the first two

are at issue here. ‘‘[S]tanding doctrine evaluates a

litigant’s personal stake as of the outset of litigation.’’

Altman v. Bedford Cent. Sch. Dist., 245 F.3d 49, 70 (2d

Cir. 2001) (quoting Cook v. Colgate, 992 F.2d 17, 19 (2d

Cir. 1993) ); see also Lujan, 504 U.S. at 569 n.4, 112

S.Ct. 2130; Gollust v. Mendell, 501 U.S. 115, 124, 111

S.Ct. 2173, 115 L.Ed.2d 109 (1991) (discussing Section

16(b) statutory standing as ‘‘limited only by conditions

existing at the time an action is begun’’). Mootness

doctrine determines what to do ‘‘[i]f an intervening

circumstance deprives the plaintiff of a personal stake

in the outcome of the lawsuit, at any point during

litigation’’ after its initiation.4 Genesis Healthcare

Corp. v. Symczyk, 569 U.S. 66, 72, 133 S.Ct. 1523, 185

L.Ed.2d 636 (2013) (internal quotation marks omitted);

see also United States v. Sanchez-Gomez, ––– U.S.

––––, 138 S.Ct. 1532, 1537, 200 L.Ed.2d 792 (2018).

For many years, however, the term ‘‘standing’’ was

also used to more broadly connote ‘‘[a] party’s right to

make a legal claim or seek judicial enforcement of a

duty or right.’’ Standing, Black’s Law Dictionary (10th

ed. 2014). In other words, ‘‘standing’’ was sometimes

used to refer to a particular Article III inquiry and

4

Ripeness doctrine, measured at the outset, is ‘‘designed

to prevent the courts, through avoidance of premature

adjudication, from entangling themselves in abstract

disagreements’’ when it is not yet clear if or how a plaintiff has

been injured. Nat’l Park Hosp. Ass’n v. Dep’t of Interior, 538 U.S.

803, 807-08, 123 S.Ct. 2026, 155 L.Ed.2d 1017 (2003) (internal

quotation marks omitted); see also Sunrise Detox V, LLC v. City

of White Plains, 769 F.3d 118, 121-22 (2d Cir. 2014).

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sometimes, more informally, as a synonym for the

personal stake in the litigation with which multiple

areas of law concerns themselves. The more informal

use of ‘‘standing’’ can be found in some of the cases the

district court relied on.

Gollust v. Mendell, the leading case on who can sue

under Section 16(b), repeatedly refers to the breadth of

‘‘standing.’’ See 501 U.S. at 123-25, 111 S.Ct. 2173. But

the Gollust Court did not ask any constitutional

questions; indeed, it avoided them. See id. at 125-26,

111 S.Ct. 2173 (stating that had Congress drafted

Section 16(b) more broadly, it would have raised

‘‘serious constitutional doubt,’’ and relying on

constitutional avoidance to avoid determining the

constitutional question). It was concerned with a

matter of statutory interpretation: to whom Section

16(b) provides a private cause of action. The ‘‘standing’’

it was discussing was what used to be called ‘‘statutory

standing.’’ The Supreme Court has since clarified that

‘‘what has been called ‘statutory standing’ in fact is not

a standing issue, but simply a question of whether the

particular plaintiff ‘has a cause of action under the

statute..’” Am. Psychiatric Ass’n v. Anthem Health

Plans, Inc., 821 F.3d 352, 359 (2d Cir. 2016) (quoting

Lexmark Int’l, Inc. v. Static Control Components, Inc.,

572 U.S. 118, 128, 134 S.Ct. 1377, 188 L.Ed.2d 392

(2014)). It is precisely ‘‘to avoid incorrectly portraying

them as jurisdictional requirements’’ that we now

avoid the term ‘‘statutory standing’’ when discussing

the sorts of requirements found in Section 16(b) on

which the Gollust court focused. See Harry v. Total Gas

& Power N. Am., Inc., 889 F.3d 104, 111 (2d Cir. 2018);

see also Am. Psychiatric Ass’n, 821 F.3d at 359

(‘‘Because the Supreme Court made clear in Lexmark

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that the ‘statutory standing’ appellation is ‘misleading’

and ‘a misnomer,’ we avoid this appellation going

forward.’’(citation omitted) (quoting Lexmark, 572 U.S.

at 127-28 & n.4, 134 S.Ct. 1377)). If Gollust had been

written after the 2014 Lexmark decision, it would

surely not have used ‘‘standing’’ in describing the

object of its analysis.

An infelicitous phrasing in one of this Circuit’s

cases adds to the confusion. In Altman, we reaffirmed

the principle that while ‘‘standing doctrine evaluates

a litigant’s personal stake as of the outset of the

litigation, the mootness doctrine ensures that the

litigant’s interest in the outcome continues to exist

throughout the life of the lawsuit.’’ 245 F.3d at 70

(internal quotation marks omitted). Just before we did

so, however, we seemed to conflate the two doctrines,

saying ‘‘if the plaintiff loses standing at any time

during the pendency of the proceedings in the district

court or in the appellate courts, the matter becomes

moot.’’ Id. at 69. This is another instance of ‘‘standing’’

being used to mean something other than the

constitutional minimum a party must establish at the

onset of a case. It is ‘‘standing’’ not in its constitutional

sense, but as a stand-in for ‘‘personal stake in the

litigation.’’

These terminological distinctions may seem mere

taxonomic fussiness. But the standing and mootness

inquiries ‘‘differ in respects critical to the proper

resolution of’’ cases like this one. Friends of the Earth,

Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S. 167,

180, 120 S.Ct. 693, 145 L.Ed.2d 610 (2000). ‘‘Standing

doctrine functions to ensure, among other things, that

the scarce resources of the federal courts are devoted

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to those disputes in which the parties have a concrete

stake. In contrast, by the time mootness is an issue,

the case has been brought and litigated, often . . . for

years.’’ Id. at 191, 120 S.Ct. 693. Thus, ‘‘[t]o abandon

the case at an advanced stage may prove more

wasteful than frugal.’’ Id. at 191-92, 120 S.Ct. 693. It

may also prove prejudicial to non-parties who forewent

filing a separate suit on the same issues in reliance on

the outcome of the suit already brought. And it may

enable defendants to game the judicial system by

providing some sort of ephemeral relief to named

plaintiffs to avoid the risk of more substantial relief

being awarded to other real parties in interest.

The difference between mootness and standing has

been most evident in class action jurisprudence.

Named plaintiffs in class litigation represent not

just—or even primarily—themselves, but also those

sufficiently similarly situated that Rule 23 enables

judicial recognition of their shared interest. Members

of a class who are not named plaintiffs (and do not opt

out) will be bound by the result of the litigation. It is

well established that their interest in the outcome

should not be ignored when circumstances deprive the

party that represents them of her interest. See

Sanchez-Gomez, 138 S.Ct. at 1538 (‘‘The certification

of a suit as a class action has important consequences

for the unnamed members of the class . . . [as] [t]hose

class members may be bound by the judgment and are

considered parties to the litigation in many important

respects.’’ (internal quotation marks omitted)).

Accordingly, ‘‘[s]ubstitution of unnamed class members

for named plaintiffs who fall out of the case because of

settlement or other reasons’’ that would deprive them

of standing if present at the outset of litigation ‘‘is a

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common and normally an unexceptionable . . . feature

of class action litigation . . . in the federal courts.’’

Phillips v. Ford Motor Co., 435 F.3d 785, 787 (7th Cir.

2006); see also Lierboe v. State Farm Mut. Auto. Ins.

Co., 350 F.3d 1018, 1023 (9th Cir. 2003)

(distinguishing between cases where standing was

lacking ab initio, where immediate dismissal is

required, and where a mootness issue arises, where

‘‘substitution or intervention might [be] possible’’);

Baxter v. Palmigiano, 425 U.S. 308, 310 n.1, 96 S.Ct.

1551, 47 L.Ed.2d 810 (1976) (allowing for such

substitution in a prisoner litigation case). But see

Symczyk, 569 U.S. at 73-74, 133 S.Ct. 1523

(distinguishing collective actions under the Fair Labor

Standards Act from Rule 23 class actions for mootness

purposes). Moreover, though a class technically does

not exist before it has been certified, ‘‘where the class

is not certified until after the claims of the individual

class representatives have become moot, certification

may be deemed to reflate back to the filing of the

complaint in order to avoid mooting the entire

controversy.’’ Robidoux v. Celani, 987 F.2d 931, 939

(2d Cir. 1993); see also Phillips, 435 F.3d at 787

(‘‘Strictly speaking, if no motion to certify has been

filed (perhaps if it has been filed but not acted on), the

case is not yet a class action and so a dismissal of the

named plaintiffs’ claims should end the case . . . [b]ut

the courts . . . are not so strict.’’). The Supreme Court

has allowed the United States to step in as a plaintiff

when statutorily permitted ‘‘despite the disappearance

of the original plaintiffs and the absence of any class

certification.’’ Pasadena City Bd. of Educ. v. Spangler,

427 U.S. 424, 430-31, 96 S.Ct. 2697, 49 L.Ed.2d 599

(1976). And substitution of a plaintiff whose individual

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claim has not been mooted is not even always

necessary after class certification unless there is

reason to believe that the class representative will no

longer meet the requirements of Rule 23. See, e.g.,

Turkmen v. Ashcroft, 589 F.3d 542, 545-46 (2d Cir.

2009).

The Seventh Circuit has described these situations

as ‘‘disregard[ing] the jurisdictional void that is

created when the named plaintiffs’ claims are

dismissed.’’ Phillips, 435 F.3d at 787. But one might

more accurately say that there is no jurisdictional void

to disregard. A legal controversy is not like an

electrical circuit, such that a court’s power switches off

as soon as the personal stake of all of the named

parties on either side of the controversy drops below

the legally adequate threshold. Rather, Rule 17

contemplates that federal courts maintain jurisdiction

over an action in which a representative plaintiff has

lost her stake long enough to determine whether the

concrete adverseness that existed at the outset of the

case can be maintained without undue prejudice to

defendants. Only if the answer is ‘‘no’’ is there no

longer a live case in front of the court. And only then

must a court dismiss the matter for want of

jurisdiction.

The dissent argues that recent Supreme Court

precedent establishes that this ‘‘more relaxed rule of

mootness’’ applies ‘‘exclusively to class actions.’’

Dissent at 228. With all due respect, this is an

over-reading of the relevant precedent. In Symczyk,

the Supreme Court held only that a plaintiff-employee

who brings a proposed collective action under the Fair

Labor Standards Act and whose individual claim is

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mooted before any of her fellow employees opt into the

action may not be replaced with another

plaintiff-employee to avoid mooting the action. See 569

U.S. at 73-76, 133 S.Ct. 1523. The Court reasoned

that, unlike in a Rule 23 class action, a FLSA

collective action ‘‘does not produce a class with an

independent legal status’’ before other employees opt

into the action. Id. at 75, 133 S.Ct. 1523. In

Sanchez-Gomez, the Supreme Court rejected a flexible

mootness inquiry in a criminal case that did ‘‘not

involve any formal mechanism for aggregating claims,’’

not even one ‘‘comparable to the FLSA collective

action.’’ 138 S.Ct. at 1539.

What Symczyk and Sanchez-Gomez teach is that

whether the interests of non-named interested parties

are to be considered in determining whether to dismiss

a case as moot depends on whether those parties have

a ‘‘legal status separate from the interest asserted by

the named plaintiff.’’ Id. at 1538 (quoting Symczyk,

569 U.S. at 74, 133 S.Ct. 1523). And whether

non-named parties have that status ‘‘turn[s] on the

particular traits’’ of the action in front of the court. Id.

Ours is not the easy question of whether a derivative

action is a class action or not but the harder question

of whether a derivative action is like a class action in

the relevant ways.

We think it is. Like a class action— but unlike a

pre-certification FLSA collective action as understood

by the Supreme Court—a derivative action involves a

representative plaintiff. Under both Rule 23,

governing class actions, and Rule 23.1, governing

derivative actions, a plaintiff seeking to bring suit

must establish that the Federal Rules allow her to

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formally represent the interests of others. Fed. R. Civ.

P. 23, 23.1. A derivative action, like a class action, is

thus ‘‘an ‘exception to the usual rule that litigation is

conducted by and on behalf of the individual named

parities only.’ ’’ Sanchez-Gomez, 138 S.Ct. at 1538

(quoting Califano v. Yamasaki, 442 U.S. 682, 700-01,

99 S.Ct. 2545, 61 L.Ed.2d 176 (1979)). A corporation is

‘‘bound by the judgment’’ of derivative litigation

brought on its behalf and is ‘‘considered [a] part[y] to

the litigation in many important respects.’’ Id. Since

the dissent does not deny these analogies, we are not

persuaded by its assertion that a derivative action is

‘‘even further afield’’ from class actions than FLSA

collective actions. Dissent at 229.

We also note that mootness doctrine counsels

suspicion in situations in which a defendant deprives

a plaintiff of her stake in the litigation. For instance,

when a plaintiff seeks an injunction, a defendant who

voluntarily ceases the challenged behavior calls into

question whether there is any way to redress the

injury alleged. A rigid view of mootness would dismiss

such an action. But it is well settled that ‘‘a

defendant’s voluntary cessation of a challenged

practice does not deprive a federal court of its power to

determine the legality of the practice.’’ Mhany Mgmt.,

Inc. v. Cty. of Nassau, 819 F.3d 581, 603 (2d Cir. 2016)

(quoting City of Mesquite v. Aladdin’s Castle, Inc., 455

U.S. 283, 289, 102 S.Ct. 1070, 71 L.Ed.2d 152 (1982)).

To prevent a defendant from strategically pausing

their wrongdoing, getting a case dismissed as moot,

and then beginning it again after the suit ends

(potentially resulting in a new suit), federal law places

the burden on the defendant who has voluntarily

ceased her wrongdoing to prove that mootness should

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result. Such a defendant has ‘‘the formidable burden of

showing that it is absolutely clear the allegedly

wrongful behavior could not reasonably be expected to

recur,’’ Friends of the Earth, 528 U.S. at 190, 120 S.Ct.

693, and that ‘‘interim relief or events have completely

and irrevocably eradicated the effects of the alleged

violation,’’5 Granite State Outdoor Advert., Inc. v. Town

of Orange, 303 F.3d 450, 451 (2d Cir. 2002) (internal

quotation marks omitted). Similarly, a defendant to a

class action may not moot a case simply by offering a

settlement equivalent to the full potential value of the

individual claims of class representatives. See

Campbell-Ewald Co. v. Gomez, ––– U.S. ––––, 136

S.Ct. 663, 670-71, 193 L.Ed.2d 571 (2016). But see

Symczyk, 569 U.S. at 72-73, 133 S.Ct. 1523 (leaving

open whether this rule applies to FLSA actions).

There is no evidence of any skullduggery in this

case, but the rule we announce today will surely apply

to cases where there has been. Dismissing Klein’s

claim without further inquiry would leave us

powerless to address a defendant’s attempt to avoid

liability by buying out derivative plaintiffs in future

cases. And strategic buyouts are not unheard of in the

Section 16(b) context. Take Gollust itself for instance.

Before that case made it to the Supreme Court, it

passed through this Circuit. See Mendell ex rel.

Viacom, Inc. v. Gollust, 909 F.2d 724 (2d Cir. 1990).

While ‘‘we decline[d]—in keeping with § 16(b)’s

objective analysis regarding defendants’ intent—to

5

Moreover, dismissing a case as moot because a

defendant has voluntarily ceased behavior that allegedly violates

a plaintiff’s rights is a discretionary matter. See In re Charter

Commc’ns, Inc., 691 F.3d 476, 483 (2d Cir. 2012).

17a

inquire whether the merger was orchestrated for the

express purpose of divesting plaintiff of standing,’’ we

could not ‘‘help but note that the . . . merger proposal

occurred after plaintiff’s § 16(b) claim was instituted,’’

which made ‘‘the danger of such intentional

restructuring to defeat the enforcement mechanism

incorporated in the statute . . . clearly present.’’ Id. at

731. We observed that ‘‘a rule that allows insiders to

avoid § 16(b) liability by divesting public shareholders

of their cause of action through a business

reorganization would undercut the function Congress

planned to have shareholders play in policing such

actions.’’ Id. The Supreme Court quoted this

observation with approval in announcing its

interpretation of Section 16(b). See Gollust, 501 U.S. at

120 n.5, 111 S.Ct. 2173. Today we observe, in parallel

fashion, that a mootness doctrine that allows those

accused of securities fraud to have a suit promptly

dismissed by buying out a derivative plaintiff would

undercut the purpose of derivative litigation under

Rule 23.1 as well as courts’ constitutional function of

resolving genuine disputes.

Thus, while the district court is correct that Klein

lost her personal stake in the litigation, it is incorrect

that it has no ability to consider Klein’s motion to

substitute Qlik.6 Unlike a federal court presented with

6

Both Section 16(b) and Rule 23.1 require a continuing

financial interest. Because the nature of the injury for

constitutional purposes is in part delimited by the law underlying

the claim in question, we need not determine whether a statute

or federal rule that enabled Klein to maintain an action despite

her loss of a financial interest in Qlik would run into

constitutional problems.

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a plaintiff who has no standing, a federal court

considering whether a case has become moot already

has jurisdiction over that case. When a representative

plaintiff’s ongoing stake in the outcome is at issue, a

federal court maintains its jurisdiction at least long

enough to determine whether the represented parties

maintain an interest and whether a substitution could

avoid mootness. So long as a proposed substitution

does not ‘‘come[ ] long after the claims of the named

plaintiff[ ] were dismissed’’ and does not alter the

substance of the action, it should be considered as an

alternative to dismissal. Phillips, 435 F.3d at 787.

II. Substituting Qlik under Rule 17(a)(3)

Klein’s proposed procedural route to substitution

is Rule 17(a)(3) of the Federal Rules of Civil Procedure.

That Rule prohibits federal courts from dismissing a

case ‘‘for failure to prosecute in the name of the real

party in interest until, after an objection, a reasonable

time has been allowed for the real party in interest to

ratify, join, or be substituted into the action.’’ Fed. R.

Civ. P. 17(a)(3). ‘‘Crucially for statute of limitations

purposes, the claim of the [substituted] real party in

interest . . . dates back to the filing of the complaint.’’

Cortlandt, 790 F.3d at 421. Qlik, the issuer of the

securities at issue, is the real party in interest in this

derivative litigation. See Donoghue, 696 F.3d at 176 &

n.5.

The district court ruled that ‘‘[e]ven if [it] had

standing to entertain [Klein’s] motion, the motion

would fail,’’ because Rule 17(a) only allows

substitution when there has been an ‘‘honest mistake

in selecting the proper party,’’ and Qlik’s conscious

decision not to litigate this action is not an ‘‘honest

19a

mistake.’’ Klein, 2017 WL 4129639, at *10 n.13. This

determination was based on an error of law, and thus

constituted an abuse of the district court’s discretion.

See Cortlandt, 790 F.3d at 417 (‘‘A district court’s

decision whether to dismiss pursuant to Rule 17(a) is

reviewed for abuse of discretion.’’ (internal quotation

marks omitted)).

In this Circuit, ‘‘Rule 17(a) substitution of

plaintiffs should be liberally allowed when the change

is merely formal and in no way alters the original

complaint’s factual allegations as to the events or the

participants.’’ Advanced Magnetics, Inc. v. Bayfront

Partners, Inc., 106 F.3d 11, 20 (2d Cir. 1997). Even if

a proposed substitution meets these requirements, it

should be denied if it is being proposed ‘‘in bad faith or

in an effort to deceive or prejudice the defendants.’’ Id.

at 21. A court may also deny a Rule 17(a) substitution

if doing so would otherwise result in ‘‘unfairness to

defendants.’’ Id. In sum, ‘‘[a]lthough the district court

retains some discretion to dismiss an action where

there was no semblance of any reasonable basis for the

naming of an incorrect party, there plainly should be

no dismissal where substitution of the real party in

interest is necessary to avoid injustice.’’ Id. at 20

(citation and internal quotation marks omitted).

Klein’s proposed substitution of Qlik would alter

none of the factual allegations of the complaint. And

there is no evidence that either Qlik or Klein are

acting or have acted in bad faith. As far as the record

shows, both Qlik and Klein honestly expected, based

on the information they had at the time of Klein’s

demand, that Klein would litigate on Qlik’s behalf

until judgment. Circumstances intervened. A

20a

third-party investor bought Qlik, resulting both in

Klein losing her interest in the litigation and Qlik

changing its corporate mind about whether to litigate

on its own behalf. We do not have even the slightest

reason to believe that this transaction was designed

with its impact on this litigation in mind. Neither

Klein nor Qlik seems to have engaged in any trickery.

Both seem merely to have responded to the

extra-litigation circumstances as they presented

themselves.

Further, we can discern no unfairness to the

Cadian Group in allowing substitution. Of course, if

substitution were not allowed, they would no longer

have to defend this action or to worry about disgorging

the profits from their alleged short-swing trades. And

this suit has gone on long enough that if Qlik were to

bring a new suit on these claims, the Cadian Group

would have a statute of limitations defense. No doubt

it is unfortunate for them that Rule 17(a)(3) is the only

thing keeping them in court. Unfortunate, but not

unfair. Ensuring that an otherwise proper suit is not

dismissed for want of a proper party when that party

is ready and willing to join the fray is the very purpose

of Rule 17(a)(3). See Cortlandt, 790 F.3d at 420-21.

Rule 17’s relation-back provision furthers that purpose

in situations like this one, where the course of the

litigation has traveled beyond the limitations period

through no fault of the real party in interest or the

party representing them.

We need not determine whether Qlik committed an

‘‘honest mistake’’ when it declined Klein’s demand

because, contrary to the dissent’s suggestion and the

district court’s holding, a plaintiff’s honest mistake is

21a

not a precondition for granting a Rule 17(a)(3) motion.

Only in two opinions interpreting Rule 17 do we ever

refer to a plaintiff’s honesty, and in neither do we

declare that establishing an ‘‘honest mistake’’ is

necessary. In Cortlandt, we mentioned by way of

background that Rule 17(a)(3) ‘‘codifies the modern

‘judicial tendency to be lenient when an honest

misstate has been made in selecting the proper

plaintiff.’ ’’ 790 F.3d at 421 (quoting 6A Charles Alan

Wright et al., Federal Practice & Procedure § 1555 (3d

ed. 2014)). But when it came time to enumerate

17(a)(3)’s requirements, we relied, as we do today, on

Advanced Magnetics, calling it the ‘‘leading case

interpreting the Rule.’’ See Cortlandt, 790 F.3d at 422.

In DeKalb County Pension Fund v. Transocean Ltd.,

we mentioned that substitution of the real party in

interest should be denied when that party has neither

established that ‘‘its tardy appearance was

understandable or honest, nor pointed to a semblance

of any reasonable basis therefor.’’ 817 F.3d 393, 412

(2d Cir. 2016) (internal quotation marks omitted). This

statement was dicta,7 and, in any case, requiring ‘‘a

semblance of a reasonable basis’’ for a real party in

interest’s ‘‘tardy appearance’’ is not the same as

requiring that party to establish that she made an

7

Contrary to the dissent’s suggestion, DeKalb’s conclusion

that the original plaintiff lacked standing and the court thus

lacked subject matter jurisdiction ab initio could not be an

‘‘alternative holding.’’ See Dissent at 230. ‘‘[I]n the absence of a

plaintiff with standing . . . there [is] . . . no lawsuit pending for

the real party in interest to ‘ratify, join, or be substituted into’

under Rule 17(a)(3) or otherwise.’’ Cortlandt, 790 F.3d at 423.

Whether the real party in interest made a mistake does not even

enter into consideration.

22a

‘‘honest mistake.’’8 Thus, both Cortlandt and DeKalb

are entirely consistent with Advanced Magnetics,

which focused on ‘‘bad faith.’’ 106 F.3d at 20-21.

Establishing that a real party in interest has made an

honest mistake is, at most, one way of making clear

that her failure to join the suit at a previous stage of

the litigation9 was not ‘‘deliberate or tactical.’’ Id.

Whether or not it was an ‘‘honest mistake’’ for Qlik not

to join this suit at its outset (or at any point prior to

the Rule 17 motion), it did not act in bad faith.

Finally, we conclude that substituting Qlik here is

‘‘necessary to avoid injustice,’’ id. at 20 (internal

quotation marks omitted), because a rule disallowing

substitution in these circumstances would contravene

the purpose of shareholder derivative suits. A company

that rejects a demand to sue does so with the

knowledge that a shareholder can sue on its behalf.

Unlike in the class action context, the filing of a

derivative action does not toll the statute of limitations

on the substantive cause of action so that a company

can intervene if a shareholder loses her interest in the

8

The dissent suggests that these two concepts are the

same. Dissent at 231. If so, then it seems the main focus of

disagreement is the narrow question of whether Qlik had any

semblance of a reasonable basis for failing to join the suit earlier.

We think Qlik exhibited at least ‘‘minimal diligence’’ in the

circumstances of this case (for the reasons articulated above); our

dissenting colleague does not.

9

In asking why a real party in interest did not join the

suit earlier, a court need not only focus on the time at which the

suit was brought (or at which demand was rejected). Bad faith in

failing to join at any prior point in the litigation can call into

question the propriety of allowing substitution.

23a

suit (legal or otherwise). See Cal. Pub. Emps.’ Ret. Sys.

v. ANZ Sec., Inc., 137 S.Ct. 2042, 2051-54 (2017)

(discussing the equitable tolling rule in the class

context and distinguishing it from securities actions

governed by the Securities Exchange Act’s statutes of

repose); SRM Global Master Fund Ltd. P’ship v. Bear

Stearns Co. L.L.C., 829 F.3d 173, 176-77 (2d Cir. 2016)

(same). Thus, if a company were disallowed from

joining a suit under Rule 17(a)(3) merely because it

had rejected a shareholder’s demand, its ability (and

the ability of its other shareholders) to recover assets

of which it was illegally deprived would stand or fall

with the continuing financial interest of the

representative shareholder. Other shareholders would

have to maintain separate derivative actions to avoid

having their investment depend on the vicissitudes of

that litigation, resulting in a ‘‘needless multiplicity of

actions.’’ Crown, Cork & Seal Co. v. Parker, 462 U.S.

345, 351, 103 S.Ct. 2392, 76 L.Ed.2d 628 (1983).

Companies would reasonably doubt whether relying on

a derivative shareholder to protect their interests

would be prudent, undermining Rule 23.1 and the

policies it furthers.

CONCLUSION

For the foregoing reasons, we VACATE the district

court’s dismissal of this action and REMAND for

substitution of Qlik and further proceedings consistent

with this decision.

24a

LOHIER, Circuit Judge, dissenting:

I would affirm Judge Ramos’s decision. Klein’s

action under Section 16(b) of the Securities Exchange

Act became moot and the District Court lost

jurisdiction the moment she ceased to have any

financial stake in Qlik. In the alternative, Judge

Ramos was right to dismiss the action under Rule

17(a)(3) when Klein failed to show that the

untimeliness of her motion to substitute Qlik as the

plaintiff resulted from an ‘‘honest mistake.’’ I address

each of these independent reasons for affirmance in

turn.

1. Mootness

The majority’s take on justiciability and mootness

is laudable as a matter of policy but wrong as a matter

of law. In United States v. Sanchez-Gomez, a decision

that issued while this appeal was pending, the

Supreme Court reminded us that a ‘‘case that becomes

moot at any point during the proceedings is no longer

a Case or Controversy for purposes of Article III, and

is outside the jurisdiction of the federal courts.’’ –––

U.S. ––––, 138 S.Ct. 1532, 1537, 200 L.Ed.2d 792

(2018) (quotation marks omitted). To avoid dismissal

on mootness grounds, the Court explained, ‘‘a plaintiff

must show a personal stake in the outcome of the

action,’’ thereby ensuring that an ‘‘actual and concrete

dispute[ ]’’ exists ‘‘at all stages of review, not merely at

the time the complaint is filed.’’Id. (quotation marks

omitted). The Court recognized that some of its prior

decisions involving class actions applied a less rigid

mootness rule. See id. at 1537–40. But the Court

confined those decisions exclusively to class actions,

explaining that reliance on a more relaxed rule of

25a

mootness in other contexts would be ‘‘misplaced.’’ Id at

1537. The Court’s reaffirmation of Genesis Healthcare

Corp. v. Symczyk, 569 U.S. 66, 133 S.Ct. 1523, 185

L.Ed.2d 636 (2013), confirms this reading of

Sanchez-Gomez. In Genesis Healthcare, the Court

declined to extend its more flexible mootness doctrine

for class actions to ‘‘collective actions’’ brought under

the Fair Labor Standards Act (FLSA), even though a

collective action is ‘‘a procedural device bearing many

features similar to a class action.’’ Sanchez-Gomez, 138

S.Ct. at 1539–40 (citing Genesis Healthcare, 569 U.S.

at 73–75, 133 S.Ct. 1523).

With Sanchez-Gomez in mind, let me turn to this

appeal. Klein, the only plaintiff in the case,

indisputably had a personal stake in the action before

Qlik’s cash-out merger transaction closed and her

shares were purchased. Had Klein received stock in a

parent company rather than cash after the merger, she

would have preserved her personal stake in this

litigation. See Gollust v. Mendell, 501 U.S. 115,

126–28, 111 S.Ct. 2173, 115 L.Ed.2d 109 (1991). But

the ‘‘intervening circumstance’’ of Qlik’s cash-out

merger in this case stripped Klein of any financial

position in the company and therefore any stake in the

outcome of this suit. See Genesis Healthcare, 569 U.S.

at 72, 133 S.Ct. 1523. At that point, ‘‘the action [could]

no longer proceed,’’ and the District Court, divested of

a concrete dispute, was obligated to dismiss it as moot.

See id.

Viewing Sanchez-Gomez as a barrier, the majority

stretches to label Klein a ‘‘representative plaintiff,’’

analogizes her suit under Section 16(b) of the

Securities Exchange Act to either class action

26a

litigation or shareholder derivative suits, and insists

that, under the looser mootness doctrine applicable to

class actions, the District Court ‘‘maintain[ed] its

jurisdiction at least long enough to determine whether

a substitution could avoid mootness.’’ Majority Op. at

225. But if Sanchez-Gomez forecloses an analogy

between class actions and FLSA collective actions,

then the analogy that the majority attempts to draw

between a class action and a Section 16(b) action

(where a single shareholder pursues a claim on behalf

of a single issuer rather than a collective) is surely

even further afield. Nor is the majority’s analogy to

derivative suits under Rule 23.1 of the Federal Rules

of Civil Procedure an apt one. To the contrary, we have

explicitly held that ‘‘[t]he standing requirements for

shareholder derivative suits are not applicable to a §

16(b) plaintiff.’’ Mendell ex rel. Viacom, Inc. v. Gollust,

909 F.2d 724, 728 (2d Cir. 1990) (emphasis added),

aff’d on other grounds sub nom. Gollust v. Mendell,

501 U.S. 115, 111 S.Ct. 2173, 115 L.Ed.2d 109 (1991);

see also 9 LOUIS LOSS, JOEL SELIGMAN & TROY

PAREDES, SECURITIES REGULATION 384 (5th ed. 2018)

(‘‘Rule 23.1 . . . has been held inapplicable to actions

under § 16(b) in view of the policy and language of that

Section.’’).

I would therefore affirm the District Court’s

dismissal of this case for lack of jurisdiction.

2. Rule 17(a)(3)

Even if the District Court retained jurisdiction

after the merger, it correctly held, in the alternative,

that Klein’s motion to substitute Qlik under Rule

17(a)(3) ‘‘would fail.’’ Klein v. Cadian Capital Mgmt.,

27a

LP, 15 Civ. 8140 (ER), 2017 WL 4129639, at *10 n.13

(S.D.N.Y. Sept. 15, 2017).

According to the majority, the District Court was

wrong to hold that Rule 17(a)(3) permits substitution

only if there has been an ‘‘honest mistake’’ in selecting

the proper plaintiff and that Qlik’s decision to refuse

Klein’s demand was not an ‘‘honest mistake.’’ Majority

Op. at 226. But the majority simply ignores our

precedent requiring a movant under Rule 17(a)(3) to

show that the failure to timely select the proper

plaintiff reflected an honest misstate. See United

States v. Zedner, 555 F.3d 68, 82 n.3 (2d Cir. 2008)

(Pooler, J., dissenting) (‘‘[W]e are bound by the

decisions of prior panels until such time as they are

overruled by an en banc panel of our Court or by the

Supreme Court.’’ (quotation marks omitted) ).

In Cortlandt Street Recovery Corp. v.. Hellas

Tellecommunications, S.A.R.L., for example, we

explained that Rule 17(a)(3) ‘‘codifies the modern

judicial tendency to be lenient when an honest mistake

has been made in selecting the proper plaintiff.’’ 790

F.3d 411, 421 (2d Cir. 2015) (emphasis added)

(quotation marks omitted). ‘‘We have ordinarily

allowed amendments under Rule 17,’’ we stated, ‘‘only

when a mistake has been made as to the person

entitled to bring suit.’’ Id. at 424 (emphasis added)

(quotation marks omitted). The majority casts our

language in Cortlandt as mere ‘‘background.’’ Majority

Op. at 227–28. Maybe. However you wish to describe

it, that language became binding precedent less than

a year later, in DeKalb County Pension Fund v.

Transocean Ltd., 817 F.3d 393 (2d Cir. 2016). There we

confirmed that Rule 17(a)(3) ‘‘ ‘was added . . . to avoid

28a

forfeiture and injustice when an understandable

mistake has been made in selecting the party in whose

name the action should be brought’ and ‘codified the

modern judicial tendency to be lenient when an honest

mistake has been made in selecting the proper

plaintiff.’ ’’ Id. at 412 (emphasis in original) (quoting

Cortlandt, 790 F.3d at 421). We then applied the

‘‘honest mistake’’ requirement, holding that DeKalb,

which had belatedly moved to be appointed lead

plaintiff in a class action, had no recourse under Rule

17(a)(3) because it had not ‘‘suggested that whatever

‘mistake’ may have led to its tardy appearance was

‘understandable’ or ‘honest,’ nor pointed to a

‘semblance of any reasonable basis’ therefor.’’ Id.

(quoting Advanced Magnetics, Inc. v. Bayfront

Partners, Inc., 106 F.3d 11, 20 (2d Cir. 1997)). We

noted that no injustice arose from applying the

requirement because DeKalb could have ‘‘through

minimal diligence’’ made a ‘‘timely motion to intervene

in the action as a named plaintiff.’’ Id. (quotation

marks omitted).

The ‘‘honest mistake’’ requirement did not come

out of thin air. The Rules Advisory Committee has long

described Rule 17(a)(3) as a mechanism to account for

‘‘when an honest mistake has been made in choosing

the party in whose name the action is to be filed.’’ Fed.

R. Civ. P. 17 advisory committee’s note to 1966

amendment (emphasis added). The Advisory

Committee’s Notes on Rule 17(a)(3), which are ‘‘a

reliable source of insight into the meaning of [the]

rule,’’ United States v. Vonn, 535 U.S. 55, 64 n.6, 122

S.Ct. 1043, 152 L.Ed.2d 90 (2002), directly contradict

the majority’s view that a ‘‘plaintiff’s honest mistake is

not a precondition for granting a Rule 17(a)(3) motion,’’

29a

Majority Op. at 227. The Notes also comport with our

previously expressed view that a ‘‘district court retains

some discretion to dismiss an action where there was

no semblance of any reasonable basis for the naming of

an incorrect party.’’ Advanced Magnetics, 106 F.3d at

20.

The majority avoids its duty to follow DeKalb (to

say nothing of the Advisory Committee’s Notes) in two

ways.

First, it characterizes DeKalb’s central holding as

‘‘dicta.’’ Majority Op. at 227–28. But DeKalb’s ‘‘honest

mistake’’ requirement is not dictum: We squarely held

that DeKalb’s Rule 17(a)(3) argument failed in the

absence of an ‘‘honest,’’ understandable,’’ or

‘‘reasonable’’ basis for not seeking to become the lead

plaintiff in the action sooner. 817 F.3d at 412

(quotation marks omitted). We also held, in the

alternative, that even if DeKalb had made an honest

mistake, its motion could not relate back to another

party’s timely complaint under the circumstances of

that case. Id. at 412–13. This alternative holding did

not downgrade our ‘‘honest mistake’’ holding to dictum.

To the contrary, our determination that DeKalb’s

motion failed to satisfy the ‘‘honest mistake’’

requirement is ‘‘an entirely appropriate basis for a

holding in th[is] later case.’’ Pyett v. Pa. Bldg. Co., 498

F.3d 88, 93 (2d Cir. 2007), rev’d on other grounds sub

nom. 14 Penn Plaza LLC v. Pyett, 556 U.S. 247, 129

S.Ct. 1456, 173 L.Ed.2d 398 (2009).

Second, the majority reasons that ‘‘requiring ‘a

semblance of a reasonable basis’ for a real party in

interest’s ‘tardy appearance’ is not the same as

requiring that party to establish that she made an

30a

‘honest mistake.’ ’’ Majority Op. at 227. In my view,

there is no logical distinction between the two phrases:

A party that has no ‘‘semblance of any reasonable

basis’’ for naming the wrong plaintiff necessarily has

not made an ‘‘honest mistake’’ in naming the wrong

plaintiff, and vice versa.

With DeKalb’s holding in mind, on this record

Judge Ramos got it right when he concluded that Klein

and Qlik failed to demonstrate that they made an

‘‘understandable’’ or ‘‘honest’’ mistake in not earlier

seeking to make Qlik the plaintiff (or, put another way,

that there was a ‘‘semblance of any reasonable basis’’

for their delay). Recall that Qlik rejected Klein’s initial

demand to sue the defendants based on their alleged

short-swing trading. Then Klein and Qlik waited until

months after Qlik’s merger was publicly announced

and ultimately closed to move to substitute Qlik as the

plaintiff. Had they exercised even ‘‘minimal diligence,’’

they could have filed ‘‘a timely motion.’’ See DeKalb,

817 F.3d at 412 (quotation marks omitted).

The majority worries that a ‘‘needless multiplicity

of [Section 16(b) ] actions’’ would flow from affirming

Judge Ramos’s decision to reject the Rule 17(a)(3)

motion in this case. Majority Op. at 228 (quotation

marks omitted). With respect, that is a policy

justification, not a legal one rooted in the Rule. And

even if there were evidence to support the majority’s

worry (there is not), ‘‘district courts have ample tools at

their disposal to manage the suits, including the

ability to stay, consolidate, or transfer proceedings.’’

China Agritech, Inc. v. Resh, ––– U.S. ––––, 138 S.Ct.

1800, 1811, 201 L.Ed.2d 123 (2018).

For these reasons I dissent.

31a

APPENDIX B

2017 WL 4129639

United States District Court, S.D. New York.

Terry KLEIN, derivatively ON BEHALF

OF QLIK TECHNOLOGIES, INC.,

Plaintiff,

v.

CADIAN CAPITAL MANAGEMENT, LP;

Cadian Fund, LP; Cadian Master Fund, LP;

Cadian Gp, LLC; Cadian Capital

Management GP, LLC; Eric Bannasch;

and Qlik Technologies, Inc.,

Defendants.

15 Civ. 8140 (ER)

Signed September 14, 2017

Filed 09/15/2017

Attorneys and Law Firms

Paul D. Wexler, Paul D. Wexler, Attorney at Law,

Joshua Seth Broitman, Roberto Legaspi Gomez, Glenn

F. Ostrager, Ostrager, Chong, Flaherty & Broitman,

P.C., New York, NY, for Plaintiff.

32a

Douglas Adam Rappaport, Kaitlin Elizabeth

Dabbert, Jacqueline Gail Yecies, Robert Hardy Pees,

Jessica Oliff Daly, Akin Gump Strauss Hauer & Feld

LLP, Marjorie Joan Peerce, Erik March Zissu, Ballard

Spahr LLP, New York, NY, for Defendants.

OPINION AND ORDER

Edgardo Ramos, U.S.D.J.

*1 Terry Klein (“Klein” or “Plaintiff”) brings this

action pursuant to Section 16(b) of the Securities

Exchange Act of 1934, 15 U.S.C. § 78p(b) (“Section

16(b)”), on behalf of nominal defendant Qlik

Technologies, Inc. (“Qlik”), seeking disgorgement of

so-called “short-swing” profits by defendants Cadian

Capital Management, LP(“CCM”), and its client funds,

related entities, and founder (together, “Cadian”).1

Pending before the Court is Cadian’s motion pursuant

to Federal Rule of Civil Procedure 12(b)(1) to dismiss

the Complaint for lack of subject matter jurisdiction,

Doc. 31, and Plaintiff’s cross-motion to allow Qlik to be

substituted as a plaintiff under Federal Rules of Civil

Procedure 17(a)(3) and 25(c), Doc. 37.2

1

Specifically, the Cadian defendants are comprised of:

CCM; CCM’s founder and portfolio manager, Eric Bannasch;

CCM’s general partner, Cadian Capital Management GP, LLC;

certain of CCM’s related funds—Cadian Fund LP and Cadian

Master Fund LP, and the Cadian Funds’ general partner, Cadian

GP, LLC. See Complaint (“Compl.”) (Doc. 1) ¶¶ 3-8.

2

Qlik, the nominal defendant, joins Klein’s cross-motion

for its substitution and opposition to Cadian’s motion to dismiss.

Doc. 38.

33a

For the reasons discussed below, Cadian’s motion

to dismiss is GRANTED, and Plaintiff’s motion to

substitute Qlik is DENIED.

I.

BACKGROUND3

Klein alleges that during the period between May

8, 2014 and December 31, 2014, Cadian engaged in

purchase and sale transactions in Qlik stock that

resulted in disgorgeable short-swing profits. Compl. ¶

30.4 On June 11, 2015, Klein demanded that Qlik sue

Cadian based on their alleged short-swing trading. Id.

¶ 36. On July 24, 2015, Qlik declined Klein’s demand

to sue. Id. Plaintiff commenced the instant suit on

October 15, 2015. At the time of filing, Klein was an

owner of Qlik common stock. Id. ¶ 1. Plaintiff does not

allege that she owned any common stock during the

3

The following facts, accepted as true for purposes of the

instant motion, are based on the allegations in the Complaint,

Plaintiff’s opposition to Defendants’ motion to dismiss, exhibits

attached to the Complaint and opposition, and declarations

submitted by the parties. See J.S. ex rel. N.S. v. Attica Cent. Sch.,

386 F.3d 107, 110 (2d Cir. 2004) (citing Shipping Fin. Servs. Corp.

v. Drakos, 140 F.3d 129, 131 (2d Cir. 1998)) (evaluating a Rule

12(b)(1) motion).

4

For purposes of this motion, at least, Cadian does not

dispute that it is a “statutory insider” as that term is defined in

Section 16(b) because it was a greater than 10% beneficial owner

of Qlik’s common stock. See 15 U.S.C. § 78p(a)(1) (defining a

statutory insider as one “who is directly or indirectly the

beneficial owner of more than 10 percent of any class of any

equity security (other than an exempted security) which is

registered pursuant to [15 U.S.C. § 78], or who is a director or an

officer of the issuer of such security.”)

34a

period of the alleged short-swing trading, from May 8,

2014 to December 31, 2014. 5

*2 After the Complaint was filed, Qlik went

through a corporate reorganization which cancelled all

of the public shareholders’ stock and paid each

shareholder cash in return. Specifically, on June 2,

2016, Qlik announced that it was in the process of

being acquired by an affiliate of the private equity

investment firm Thoma Bravo, LLC (“Thoma Bravo”).

See Declaration of Robert H. Pees in Support of Motion

to Dismiss (“Pees Decl.”) (Doc. 33) Ex. B (“June 2016

Form 8-K”). On August 22, 2016, the merger

transaction closed. Pees Decl. Ex. C (“August 2016

Form 8-K”). Under the terms of the merger agreement,

each share of Qlik common stock was cancelled and

converted to the right to receive $30.50 in cash. Id. at

3. Qlik is now a wholly owned subsidiary of Qlik

Parent, Inc., which is, in turn, controlled by

investment funds affiliated with Thoma Bravo. Id.

In November 20166 — nearly three months after

the cashout merger divested Klein of her shares and

thirteen months after she filed the lawsuit—nominal

defendant Qlik retained Klein’s counsel to litigate the

5

The Complaint does not indicate the date of her

purchase of the stock, but rather that at the time of filing the

instant action, she was a stockholder. See Compl. ¶ 1.

6

On November 20, 2015, upon agreement of counsel, this

case was stayed pending the Court’s decision on Defendants’

motion to dismiss the complaint in Klein v. Cadian Capital

Management, L.P. (Infloblox), 15 Civ. 4478 (ER). Doc. 17. The

Court denied that motion on September 30, 2016, thereby lifting

the stay.

35a

§ 16(b) claims on its behalf, and now requests that the

Court substitute Qlik as Plaintiff. Plaintiff’s

Memorandum of Law in Opposition to Defendants’

Motion to Dismiss and in Support of Plaintiff’s

Cross-Motion for Substitution (“Pl.’s Mem.”) (Doc. 39)

at 2.

Cadian now moves to dismiss the action under

Rule 12(b)(1) for lack of subject matter jurisdiction,

arguing that Klein lacked standing at the inception of

the lawsuit, and even if she had standing at the

inception, she lacks standing now. Memorandum of

Law in Support of the Cadian Defendants’ Motion

Under F.R.C.P. (12)(b)(1) to Dismiss the Complaint for

Lack of Standing (“Defs.’ Mem.”) (Doc. 32) at 1. Klein

concedes that she lost her personal stake in the

outcome of this litigation and cross-moves to substitute

nominal Defendant Qlik as plaintiff. Doc. 37.

II. APPLICABLE LAW

A. Motion to Dismiss Under Rule 12(b)(1)

A case is properly dismissed for lack of subject

matter jurisdiction under Rule 12(b)(1) when the

district court lacks the statutory or constitutional

power to adjudicate it. See Fed. R. Civ. P. 12(b)(1). A

plaintiff asserting subject matter jurisdiction has the

burden of proving by a preponderance of the evidence

that it exists. Makarova v. United States, 201 F.3d

110, 113 (2d Cir. 2000). “In resolving a motion to

dismiss under Rule 12(b)(1), the district court must

take all uncontroverted facts in the complaint (or

petition) as true, and draw all reasonable inferences in

favor of the party asserting jurisdiction.” Tandon v.

Captain’s Cove Marina of Bridgeport, Inc., 752 F.3d

36a

239, 243 (2d Cir. 2014). In resolving a motion to

dismiss for lack of subject matter jurisdiction under

Rule 12(b)(1), a district court may refer to evidence

outside the complaint. Makarova, 201 F.3d at 113

(citing Kamen v. American Tel. & Tel. Co., 791 F.2d

1006, 1011 (2d Cir. 1986)); see also Zappia Middle E.

Constr. Co. v. Emirate of Abu Dhabi, 215 F.3d 247, 253

(2d Cir. 2000) (“[T]he court may resolve the disputed

jurisdictional fact issues by referring to evidence

outside of the pleadings, such as affidavits, and if

necessary, hold an evidentiary hearing.”).

B. Motion to Substitute or Intervene

Plaintiff seeks to substitute Qlik under two

separate Federal Rules of Civil Procedure: Fed. R. Civ.

P. 17(a) (3)—Joinder of the Real Party in Interest; and

Fed. R. Civ. P. 25(c)—Transfer of Interest.7

*3 Rule 17(a)(1) requires that an action “be

prosecuted in the name of the real party in interest.”

Fed. R. Civ. P. 17(a)(1). However, Rule 17(a)(3)

prohibits a court from dismissing an action for failure

to comply with subsection (a)(1) “until, after an

objection, a reasonable time has been allowed for the

real party in interest to ratify, join, or be substituted

into the action.” Fed. R. Civ. P. 17(a) (3); see also

Cortlandt St. Recovery Corp. v. Hellas

7

Plaintiff also argues that under Fed. R. Civ. P. 15(c)(1)

the claims of the proposed new plaintiff should be deemed to

“relate back” to the date of filing of the initial Complaint. Rule

15(c) governs when an amended pleading “relates back” to the

date of a timely filed original pleading and is thus itself timely

even though it was filed outside an applicable statute of

limitations. Krupski v. Costa Crociere S. p. A., 560 U.S. 538, 541

(2010).

37a

Telecommunications, 790 F.3d 411, 420 (2d Cir. 2015).

“The real party in interest principle embodied in Rule

17 ensures that only a person who possesses the right

to enforce a claim and who has a significant interest in

the litigation can bring the claim.” Cortlandt St.

Recovery Corp., 790 F.3d at 420 (internal quotation

marks and citations omitted). If a party successfully

moves for ratification, joinder, or substitution, “the

action proceeds as if it had been originally commenced

by the real party in interest.” Fed. R. Civ. P. 17(a)(3).

Crucially for statute of limitations purposes, the claim

of the real party in interest dates back to the filing of

the complaint. Cortlandt St. Recovery Corp., 790 F.3d

at 421.

Rule 17 was initially adopted to ensure that

assignees could bring suit in their own names,

contrary to the common-law practice. See Fed. R. Civ.

P. 17 advisory committee’s notes, 1966 Amendment.

However, “the modern function of the rule ... is [ ] to

protect the defendant against a subsequent action by

the party actually entitled to recover, and to insure

generally that the judgment will have its proper effect

as res judicata.” Cortlandt St. Recovery Corp., 790 F.3d

at 421 (alterations in original). The dismissal provision

in Rule 17(a)(3) was added later “to avoid forfeiture

and injustice when an understandable mistake has

been made in selecting the party in whose name the

action should be brought.” Id. (citing 6A Charles Alan

Wright et al., Fed. Prac. & Proc. Civ. § 1555 (3d ed.

2014)). “That provision codifies the modern judicial

tendency to be lenient when an honest mistake has

been made in selecting the proper plaintiff.” Id.

38a

Rule 25(c) addresses the addition of a party

pursuant to a transfer of interest that occurs after the

filing of the complaint. See Fed. R. Civ. P. 25(c). Rule

25(c) provides, in relevant part: “If an interest is

transferred, the action may be continued by or against

the original party unless the court, on motion, orders

the transferee to be substituted in the action or joined

with the original party.” Fed. R. Civ. P. 25(c). In other

words, the rule serves as a procedural mechanism to

bring a successor in interest into court when “it has

come to own the property in issue.” Negrón-Almeda v.

Santiago, 579 F.3d 45, 53 (1st Cir. 2009). “The

‘primary consideration in deciding a motion pursuant

to Rule 25(c) is whether substitution will expedite and

simplify the action.’ ” Taberna Capital Mgmt., LLC v.

Jaggi, No. 08 Civ. 11355 (DLC), 2010 WL 1424002, at

*2 (S.D.N.Y. Apr. 9, 2010) (quoting Banyai v. Mazur,

No. 00 Civ. 9806 (SHS), 2009 WL 3754198, at *3

(S.D.N.Y. 2009) (collecting cases)). “ ‘Substitution of a

successor in interest . . . under Rule 25(c) is generally

within the sound discretion of the trial court.’ ” Id.; see

also State Bank of India v. Chalasani, 92 F.3d 1300,

1312 (2d Cir. 1996) (“[G]ranting substitution of one

party in litigation for another under Rule 25(c) is a

discretionary matter for the trial court.”).

C. Section 16(b) Generally

Section 16(b) requires, among other things, that a

statutory insider surrender to the issuer (that is, the

corporation which issued the applicable equity

security, also known as the “issuing corporation”) “any

profit realized by him [or her] from any purchase and

sale, or any sale and purchase, of any equity security

of such issuer . . . within any period of less than six

39a

months . . . , irrespective of any intention on the part

of such [statutory insider] in entering into such

transaction....” 15 U.S.C. § 78p(b). The statute

“imposes a form of strict liability” on statutory insiders

rendering them liable “even if they did not trade on

inside information or intend to profit on the basis of

such information.” Gollust v. Mendell, 501 U.S. 115,

122 (1991); see Gwozdzinsky v. Zell/Chilmark Fund,

156 F.3d 305, 310 (2d Cir. 1998) (“The statute, as

written, establishes strict liability for all transactions

that meet its mechanical requirements.”). In enacting

the statute, “ ‘Congress recognized that insiders may

have access to information about their corporations not

available to the rest of the investing public. By trading

on this information, these persons could reap profits at

the expense of less well informed investors.’ ” Gollust,

501 U.S. at 121 (quoting Foremost-McKesson, Inc. v.

Provident Sec. Co., 423 U.S. 232, 243 (1976)).

*4 In contrast to “most of the federal securities

laws, Section 16(b) does not confer enforcement

authority on the Securities and Exchange

Commission.” Gollust, 501 U.S. at 122. Rather, the

statute authorizes two categories of private persons to

sue for relief: (1) “the issuer” of the security traded in

violation of Section 16(b); or (2) “the owner of any

security of the issuer in the name and in behalf of the

issuer,” but only “if the issuer shall fail or refuse to

bring such suit within sixty days after the request or

shall fail diligently to prosecute the same thereafter.”

15 U.S.C. § 78p(b). Thus, the statute recruits the

issuer and its security holders as “policemen” by

providing them “a private-profit motive” to enforce the

law’s prohibition on short-swing trading by insiders.

Gollust, 501 U.S. at 124-25 (quoting Hearings on H.R.

40a

7852 and H.R. 8720 before House Committee on

Interstate & Foreign Commerce, 73d Cong., 2d Sess.

136 (1934)).

III.

DISCUSSION

Cadian asserts that Klein lacked standing at the

inception of the lawsuit, and even if she had standing

at the inception, she lacks standing now. Defs’ Mem.

at 1. Specifically, Cadian claims that the Court was

stripped of its jurisdiction on the day of the merger in

August 2016 when Klein’s shares were cashed out, and

therefore it is now jurisdictionally prohibited from

substituting Qlik in place of Klein. Memorandum of

Law in Opposition to Plaintiff’s Cross-Motion for

Substitution and in Further Support of the Cadian

Defendants’ Motion Under F.R.C.P. 12(b)(1) to Dismiss

the Complaint for Lack of Standing (“Defs.’ Reply”)

(Doc. 40) at 3-4.

Before the Court may consider Klein’s request to

substitute Qlik as plaintiff, it must first determine

that it has jurisdiction over the case. See Steel Co. v.

Citizens for a Better Env’t, 523 U.S. 83, 94-95 (1998)

(“The requirement that jurisdiction be established as

a threshold matter is . . . ‘inflexible and without

exception.’”); see also Harrison v. Potter, 323 F. Supp.

2d 593, 598 (S.D.N.Y. 2004) (“A court should consider

a motion under Federal Rule of Civil Procedure

12(b)(1) prior to the merits of a claim because the

substantive merits thereafter “become moot and do not

need to be determined.”) (citing Rhulen Agency, Inc. v.

Alabama Ins. Guar. Ass’n, 896 F.2d 674, 678 (2d Cir.

1990)).

41a

A. Standing and Mootness

The Constitution limits the jurisdiction of Article

III courts to matters that present actual cases or

controversies. See U.S. Const. Art. III, § 2, cl. 1. “This

limitation means that when a plaintiff brings suit in

federal court, she must have standing to pursue the

asserted claims. It also generally means that if the

plaintiff loses standing at any time during the

pendency of the proceedings in the district court or in

the appellate courts, the matter becomes moot, and the

court loses jurisdiction.” Altman v. Bedford Cent. Sch.

Dist., 245 F.3d 49, 69 (2d Cir. 2001). As the Second

Circuit has stated, “While the standing doctrine

evaluates [a litigant’s] personal stake as of the outset

of the litigation, the mootness doctrine ensures that

the litigant’s interest in the outcome continues to exist

throughout the life of the lawsuit . . . Thus, even as to

claims that plaintiffs originally had standing to assert,

the court must determine whether those claims remain

live controversies or have become moot.” Id. (citing

Cook v. Colgate, 992 F.2d 17, 19 (2d Cir. 1993))

(internal citation omitted).

“A case becomes moot when the issues presented

are no longer live or the parties lack a legally

cognizable interest in the outcome.” Freedom Party of

New York v. New York State Board of Elections, 77

F.3d 660, 662 (2d Cir. 1996) (quoting New York City

Employees’ Retirement System v. Dole Food Co., 969

F.2d 1430, 1433 (2d Cir. 1992) (internal quotation

marks omitted)). If a claim has become moot prior to

the entry of final judgment, the district court generally

should dismiss the claim for lack of jurisdiction. See,

42a

e.g., Campbell v. Greisberger, 80 F.3d 703, 705 (2d Cir.

1996) (affirming mootness dismissal).

a) Jurisdiction at the Inception of the

Lawsuit

*5 It is undisputed that the Complaint adequately

alleges a Section 16(b) claim against Cadian and that

Klein, as a shareholder, is a person statutorily

authorized to file such a claim. See W.R. Huff Asset

Mgmt. Co., LLC v. Deloitte & Touche LLP, 549 F.3d

100, 105, 106 (2d Cir. 2008) (distinguishing statutory

securities fraud standing from constitutional

standing). It is similarly undisputed for purposes of

this motion that Klein owned stock in Qlik at the time

she filed the instant suit. Cadian nevertheless

contends that the district court lacks jurisdiction

because Klein does not allege that she owned Qlik

stock at the time of the insider trading and therefore

has no standing to sue. Defs.’ Mem. at 1, 7 n.3. This

argument is without merit.

The conclusion that Klein had standing to pursue

the claim even though she did not hold stock at the

time of the short-swing trading is consistent with the

Supreme Court’s determination in Gollust. See Gollust,

501 U.S. at 123-26 (analyzing statutory and

constitutional standing in a Section 16(b) action and

finding that because plaintiff was a shareholder at the

time he instituted the action, standing requirements

were met, and noting that “the terms of the statute do

not even require that the security owner have had an

interest in the issuer at the time of the defendant’s

short-swing trading.”).

43a

Additionally, the Second Circuit’s decision in

Donoghue v. Bulldog Inv’rs Gen. P’ship, 696 F.3d 170

(2d Cir. 2012), distinguished between statutory and

constitutional standing and recognized that a

statutory violation can cause an injury in fact

sufficient to establish standing. In Bulldog Investors,

the defendant argued that the plaintiff lacked standing

because she “failed to demonstrate that the proscribed

short-swing trading caused [the issuer] actual injury

as necessary to satisfy the case-or-controversy

requirement of Article III of the Constitution.” Id. at

172. There, the Second Circuit found that the

plaintiff—who brought suit on behalf of an

issuer—had constitutional standing to bring an action

under Section 16(b) based in part on its conclusion

that § 16(b) “created legal rights” that, in turn,

“clarified the injury that would support standing.” Id.

at 180. Specifically, the Court held that Section 16(b)

confers on issuers a legal right to the short-swing

profits of insiders sufficient to establish constitutional

standing. Id. at 175. The Second Circuit explained that

under Section 16(b), a shareholder plaintiff pursues a

claim on behalf of an issuer, and thus the claim “is

derivative in the sense that the corporation is the

instrument . . . for the effectuation of the statutory

policy.” Id. (internal quotation marks and citations

omitted).

Consistent with the Supreme Court’s decision in

Gollust and the Second Circuit’s decision in Bulldog

Investors, the Court finds that Klein suffered an injury

in fact that is traceable to Cadian’s alleged short-swing

trading. Here, as in Bulldog Investors, Klein filed this

lawsuit on behalf of Qlik to recover short-swing profits

under Section 16(b). Unlike in other derivative cases,

44a

a Section 16(b) plaintiff is not required to plead that

she was an owner of securities at the time of the

alleged short-swing trading. Thus, although Bulldog

Investors did not specifically address the question of

whether the plaintiff in that case owned stock of the

issuer at the time of the short swing transaction, “its

holding as to the derivative nature of the claim

compels the conclusion that security ownership at the

time of the underlying short swing trading is not

determinative of a shareholder plaintiff’s ability to

assert a constitutionally sufficient injury in a Section

16(b) lawsuit brought on behalf of the corporation.”

Roth v. Scopia Capital Mgmt. LP, No. 16 Civ. 6182

(LTS), 2017 WL 3242326, at *4 (S.D.N.Y. July 28,

2017) (relying on Bulldog Investors in holding that a

Section 16(b) derivative plaintiff had constitutional

standing even though he did not own stock at the time

of the short-swing trading). Accordingly, the Court

finds that Klein had standing to bring this case

because she owned Qlik shares at the time the lawsuit

was filed.

*6 Cadian invokes the Supreme Court’s recent

decision in Spokeo, Inc. v. Robins, 136 S. Ct. 1540

(2016), arguing that Klein lacks constitutional

standing because she cannot demonstrate that she, as

an individual, suffered a concrete and particularized

injury because she was not a shareholder at the time

of the alleged short-swing trading. Defs.’ Mem. at 7

n.3. In Spokeo, the Supreme Court considered a case in

which a plaintiff brought suit to enforce the Fair

Credit Reporting Act (FCRA), 15 U.S.C. § 1681e(b), a

consumer protection statute. Spokeo was a consumer

reporting agency that operated a website through

which users could search for information about a

45a

person by inputting that person’s identifying

information. Id. at 1544. Spokeo would search its

databases and provide detailed information to the user

about the search subject, such as his address,

telephone number, marital status, or age. Id. at 1546.

The plaintiff sued Spokeo when he learned that the

company incorrectly reported information about him,

which he claimed violated the FCRA. Id.

Plaintiff alleged that Spokeo violated his statutory

rights and that his personal interests in the handling

of his credit information were individualized, and thus

he had standing. Id.; see also Robins v. Spokeo, Inc.,

No. Civ. 10-05306 (ODW), 2011 WL 597867, at *1

(C.D. Cal. Jan. 27, 2011). The district court dismissed

plaintiff’s complaint for lack of subject matter

jurisdiction based on the absence of an injury in fact

sufficient to confer constitutional standing under

Article III. Spokeo, 136 S. Ct. at 1543. The Ninth

Circuit reversed, holding that based on plaintiff’s

allegation that Spokeo violated his statutory rights

and the fact that his personal interests in the handling

of his credit information are individualized, he

adequately alleged an injury in fact. Id.

The Supreme Court reversed the Ninth Circuit,

holding that standing requires an injury in fact, and

that Congress “cannot erase Article III’s standing

requirements by statutorily granting the right to sue

to a plaintiff who would not otherwise have standing.”

Id. at 1548 (citation and internal quotation marks

omitted). The injury-in-fact element requires a

plaintiff to show that she suffered “an invasion of a

legally protected interest” that is “concrete and

particularized” and “actual or imminent, not

46a

conjectural or hypothetical.” Id. (citing Lujan v. Defs.

of Wildlife, 504 U.S. 555, 560 (1992)). The Court

reiterated that “Congress may ‘elevat[e] to the status

of legally cognizable injuries concrete, de facto injuries

that were previously inadequate in law.’ ” Id. at 1549

(quoting Lujan, 504 U.S. at 578, 112 S.Ct. 2130). The

Court added that “the violation of a procedural right

granted by statute can be sufficient in some

circumstances to constitute injury in fact” and in such

circumstances, “a plaintiff . . . need not allege any

additional harm beyond the one Congress has

identified.” Id. (emphasis in original).

The Supreme Court’s unanimous decision in

Gollust and the Second Circuit’s decision in Bulldog

Investors both pre-date Spokeo. However, Cadian’s

suggestion that Spokeo alters the constitutional

sufficiency of the statutory standing conferred by

Section 16(b) on plaintiffs who did not hold interests in

an issuer at the time of the short-swing trading is

unavailing. See Roth, 2017 WL 3242326, at *4

(considering the effect of Spokeo on Bulldog Investors

in holding that a Section 16(b) derivative plaintiff had

constitutional standing even though he did not own

stock at the time of the short-swing trading). Spokeo

addressed only the sufficiency of a claim brought by an

individual on his own behalf, not a derivative claim

brought on behalf of the corporation. Bulldog Investors

is consistent with Spokeo in that the Second Circuit

recognized that a statutory violation serves as a basis

for Article III standing only where a violation of a

statute goes hand in hand with a distinct, palpable

and nontheoretical injury in fact, can. See 696 F.3d at

177-78. In Bulldog Investors, the Court did not find

standing on the basis of a statutory violation alone: it

47a

recognized that the corporate issuer (and by extension,

the derivative suit plaintiff) suffered distinct and real

injury in that case since its reputation of integrity and

marketability of its stock were damaged by insider

trading, which is a serious breach of fiduciary duty. Id.

Moreover, Spokeo does not even mention Gollust, much

less overturn it. This Court could reject the holdings in

Gollust or Bulldog Investors if a showing is made that

its rationale was overruled either implicitly or

expressly by the Supreme Court in Spokeo, but no such

showing has been made here. See United States v.

Ianniello, 808 F.2d 184, 190 (2d Cir. 1986), abrogated

on other grounds by United States v. Indelicato, 865

F.2d 1370 (2d Cir. 1989).

b)

Jurisdiction After the Cash-Out Merger

*7 A more difficult constitutional question is

whether the Court retained jurisdiction of the action

after the cashout merger, which divested Klein’s

interest in Qlik. Cadian argues that Klein lost any

possible economic interest in the lawsuit in late

August 2016 when her shares were cashed out. Defs.’

Mem. at 9. Notably here, Klein concedes that “the

merger terminated her right to continue this action

because she lost her personal stake in the outcome.”

Pl.’s Mem. at 2. Klein contends, however, that the

Section 16(b) claim, which was brought on Qlik’s

behalf, has not been resolved, and thus the controversy

lives on in this derivative action because she is a

nominal plaintiff and her loss of economic interest is

immaterial to Qlik’s recovery. Pl.’s Mem. at 6-7.

The Second Circuit has outlined that in a Section

16(b) derivative action, there are two steps to the

injury analysis. First, because a derivative action

48a

generally is “a mere procedural device to enforce”

substantive rights belonging to the issuer ... there

must be injury in fact to that real party in interest.”

Bulldog Inv’rs Gen. P’ship, 696 F.3d at 175-76. Second,

the Supreme Court has recognized that when an

issuer’s interests are pursued derivatively by a

shareholder, a “serious constitutional question” would

arise if the shareholder were allowed to maintain the

Section 16(b) claim even after losing all personal

financial interest in the outcome of the litigation. Id.

(citing Gollust, 501 U.S. at 126).

Cadian argues that the Supreme Court’s decision

in Gollust dictates dismissal. Defs.’ Mem. at 6-7.

There, the Supreme Court addressed whether a

plaintiff who properly files a Section 16(b) lawsuit

loses standing due to a corporate reorganization that

occurs while the action is pending. Gollust, 501 U.S. at

122. The plaintiff in Gollust was a shareholder of

Viacom International, Inc. (“Viacom”) at the time that

he brought a Section 16(b) action on Viacom’s behalf.

Id. at 118. Viacom was then acquired by another

company during the pendency of the lawsuit, and

Viacom’s shareholders “received a combination of cash

and stock in [the new acquiring parent company] in

exchange for their [Viacom] stock.” Id. at 118-19. The

Court explained that a “plaintiff must maintain a

‘personal stake’ in the outcome of the litigation

throughout its course.” Id. at 125. Despite the fact that

the plaintiff no longer owned Viacom stock, the

Supreme Court held that the plaintiff satisfied both

the statutory and constitutional standing

requirements because “[h]e owned a ‘security’ of the

‘issuer’ at the time he ‘instituted’ [the] action” and

“retain[ed] a continuing financial interest in the

49a

outcome of the litigation derived from his stock in

International’s sole stockholder . . .” at 127. Thus this

continuing—albeit indirect—interest sufficed to confer

standing because the plaintiff would benefit if the

action succeeded. See id.

Further, in Gollust, the Supreme Court explained

that “Congress must, indeed, have assumed any

plaintiff would maintain some continuing financial

stake in the litigation ... [f]or if a security holder were

allowed to maintain a § 16(b) action after he had lost

any financial interest in its outcome, there would be

serious constitutional doubt whether that plaintiff

could demonstrate the standing required by Article

III’s case-or-controversy limitation on federal court

jurisdiction.” Gollust, 501 U.S. at 125-26.8 The

Supreme Court did not need to reach that question

because it found that the plaintiff’s continuing

financial interest in the acquiring company was

sufficient to satisfy the case and controversy

8

The parties dispute the appropriate analytical

framework the Court should apply here. Cadian argues that Klein

lacks standing, but Klein asserts that Cadian conflates standing

and mootness because “standing refers to the interest that the

plaintiff must have at the inception of the litigation; mootness

occurs when a plaintiff loses that interest during the course of the

case.” Pl.’s Mem. at 3. Klein argues this distinction is important

because whereas a plaintiff bears the burden of demonstrating

standing, the defendant bears the burden of proving that a case

has become moot, and because Courts analyze the mootness

doctrine with more “flexibility.” Id. at 3-4. While it may be true

that courts have distinguished between standing and mootness,

the Supreme Court in analyzing whether a “plaintiff would

maintain some continuing financial stake” in a Section 16(b)

litigation has indicated that the applicable doctrine is that of

standing. Gollust, 501 U.S. at 125-26.

50a

requirement. The issue before this Court is the precise

question the Supreme Court did not reach —whether

subject matter jurisdiction still exists where it is

undisputed that the individual plaintiff has lost her

personal financial stake in the outcome of the

litigation due to divestment.9

*8 Here, unlike in Gollust, Klein has no

continuing financial interest, direct or indirect, in the

issuer’s new parent corporation. Under the terms of

the merger agreement, each share of Qlik common

stock was cancelled and converted to the right to

receive $30.50 in cash with no provision of stock in the

surviving corporation. Thus, Klein concedes that

because she received cash, she lost all personal

financial interest in the outcome of the Section 16(b)

litigation, and this fact alone is dispositive of her lack

of standing. See Gollust, 501 U.S. at 126 (“[T]he

plaintiff must maintain a ‘personal stake’ in the

outcome of the litigation throughout its course.”);

Romeo & Dye § 9.03[2][a][iv] (“A plaintiff-security

holder who institutes a Section 16(b) lawsuit must

maintain a continuous financial interest in the lawsuit

throughout the litigation.”).

c)

Substitution Under Rule 17

The Court now must consider whether Klein is still

able to substitute Qlik as a plaintiff even though she

lacks personal standing. Plaintiff argues that

dismissing the action entirely due to Klein’s loss of her

9

In Bulldog Investors, the Second Circuit also did not

address this constitutional question because there was no dispute

concerning the plaintiff’s continuing financial stake in the

litigation. See Bulldog Inv’rs, 696 F.3d. at 176.

51a

shareholder interest undermines the public policy of

Section 16(b). Pl.’s Mem. at 12. While it may be true

that the statute recruits the issuer or stockholders to

enforce the law’s prohibition on short-swing trading by

insiders, even Congress cannot bypass the

constitutional requirements of standing. While

“Congress may grant an express right of action to

persons who otherwise would be barred by prudential

standing rules . . . Article III’s requirement remains:

the plaintiff still must allege a distinct and palpable

injury to himself.”

Robainas v. Metro. Life Ins. Co., No. 14 Civ. 9926

(DLC), 2015 WL 5918200, at *6 (S.D.N.Y. Oct. 9,

2015), aff’d sub nom. Ross v. AXA Equitable Life Ins.

Co., 680 Fed.Appx. 41 (2d Cir. 2017) (internal

quotation marks and citation omitted). “Cases

recognizing that a federal statutory violation can

confer standing rely on finding a concrete injury in

making that determination.” Id. (listing cases). While

it is well settled law that, since recovery is for the

corporation, a corporation is the real party in interest

and the stockholder plaintiff is but “the mere vehicle

of recovery” in a Section 16(b) action, Blau v. Lamb,

314 F.2d 618, 619 (2d Cir. 1963), no authority suggests

that Congressional policy overrides Article III’s

requirements. See Bulldog Inv’rs, 696 F.3d at 180

(“Although Congress had a “general interest in

safeguarding the integrity of the stock market” when

it enacted Section 16(b) of the Securities Exchange Act

of 1934 and required short-swing profits to be

disgorged, “it did not eliminate the injury requirement

of standing.”).

52a

For the same reason, Klein’s argument that Qlik

should be allowed to substitute as the “real party in

interest” under Rule 17(a) even though she lacks a

continuing personal interest in the litigation also fails:

Rule 17(a) cannot create jurisdiction that does not

exist. Although the Second Circuit has not considered

the precise issue of whether a real party in interest

may be substituted under Rule 17 where an original

Plaintiff loses her interest in the litigation after

commencement of the action, the recent case of

Cortlandt St. Recovery Corp. v. Hellas

Telecommunications, 790 F.3d 411 (2d Cir. 2015), is

instructive. In Cortlandt Street, the district court held

that the plaintiff lacked standing to pursue contract

claims because of the lack of a valid assignment. Id. at

418. On appeal, the plaintiff argued that even if it

lacked constitutional standing, the district court erred

in denying its request to amend the complaint to cure

that deficiency by means of either a substitution or an

assignment pursuant to Rule 17(a)(3). Id. at 420, 422.

The Second Circuit did not reach the issue of whether

a substitution under Rule 17 is permissible even where

a plaintiff lacks standing as to all of her claims

because it found that neither of the plaintiff’s

contemplated substitution and assignments were

allowed under Rule 17(a)(3). Id. at 423.

*9 In dictum, however, Cortlandt Street

considered that the Sixth Circuit in Zurich Insurance

Co. v. Logitrans, Inc., 297 F.3d 528, 531 (6th Cir.

2002), held that where a plaintiff has no standing at

the outset of litigation, it cannot “make a motion to

substitute the real party in interest.” 790 F.3d at 423.

The Second Circuit also noted that Zurich has been

“met with some criticism” and quoted a leading

53a

treatise that characterized it as “troubling.” Id. (citing

13A Charles Alan Wright et al., Fed. Prac. & Proc. Civ.

§ 3531 n. 61 (3d ed. 2014)). The author of the Cortlandt

Street majority opinion also wrote a concurrence in

which he emphasized that Zurich was not the law of

the Second Circuit, and suggested that it should not

be. See Cortlandt Street, 790 F.3d at 425 (Sack, J.,

concurring).

Despite the Second Circuit’s cautionary dictum

regarding Zurich, the Second Circuit has repeatedly

emphasized that “Rule 17 does not ... affect jurisdiction

and relates only to the determination of proper parties

and the capacity to sue.” Oscar Gruss & Son, Inc. v.

Hollander, 337 F.3d 186, 193-94 (2d Cir. 2003) (citing

4 James William Moore, et al., Moore’s Federal

Practice § 17.13 (3d ed. 1999)); Lunney v. United

States, 319 F.3d 550, 557 (2d Cir. 2003) (“Rule 17(a)

cannot be construed to extend subject matter

jurisdiction.”); Airlines Reporting Corp. v. S and N

Travel, Inc., 58 F.3d 857, 861 n. 4 (2d Cir. 1995) (“Rule

17(a) ... is a procedural rule which does not extend or

limit the subject matter jurisdiction of a federal

court.”); see also Lincoln Prop. Co. v. Roche, 546 U.S.

81, 90 (2005) (Rule 17(a) “address[es] party joinder,

not federal-court subject-matter jurisdiction”). It is

also well-settled law that the Federal Rules of

Procedure cannot expand jurisdiction beyond its

constitutional limits. See Fed. R. Civ. P. 82 (“[The

Federal Rules of Civil Procedure] do not extend or

limit the jurisdiction of the district courts ...”); Kent v.

N. California Reg’l Office of Am. Friends Serv. Comm.,

497 F.2d 1325, 1329 (9th Cir. 1974) (“There is no doubt

that ... the trustees are the real party in interest by

virtue of Fed. R. Civ. P. 17(a). But Rule 17(a) means

54a

only that the trustees have a real interest in the trust

fund. Rule 17(a) does not give them standing; ‘real

party in interest’ is very different from standing.”)

(citing 6 C. Wright & A. Miller, Federal Practice and

Procedure § 1542, at 641 (1971)). 10

Thus, even if the Court were to find that Qlik is a

real party in interest, its amenability to substitution

under Rule 17(c) cannot alter Klein’s lack of

constitutional standing.11 No fewer than four other

district courts in the Second Circuit have reached

similar conclusions. See Tech-Sonic, Inc. v. Sonics &

Materials, Inc., No. 3:12 Civ. 01376 (MPS), 2016 WL

3962767, at *15 (D. Conn. July 21, 2016) (analyzing

opinions from district courts in the Second Circuit and

holding that “Rule 17 cannot cure a standing defect if,

as here, a court lacks jurisdiction over all the claims in

the case”); Clarex Ltd. v. Natixis Sec. Am. LLC, No. 12

Civ. 0722 (PAE), 2012 WL 4849146, at *7-8 (S.D.N.Y.

Oct. 12, 2012) (rejecting an argument that a plaintiff

who lacked standing could remedy the jurisdictional

defect under Rule 17, and noting that “where courts in

10

Klein erroneously conflates the standing and real party

in interest analyses. Standing and real party in interest issues

overlap “to the extent that the question in both is whether the

plaintiff has a personal interest in the controversy.” Whelan v.

Abell, 953 F.2d 663, 672 (D.C. Cir. 1992) (citing 6A C. Wright, A.

Miller & M. Kane, Federal Practice and Procedure § 1524, at 32930 (1990)).

11

The same is true for Klein’s motion for substitution

under Rule 25(c). “As to subject matter jurisdiction, Rule 25(c)

does not change the constitutional requirement that an actual

case or controversy must exist throughout a lawsuit.” Reibman

v. Renesas Elecs. Am., Inc., No. 11 Civ. 03847 (JCS), 2014 WL

251955, at *7 (N.D. Cal. Jan. 7, 2014).

55a

this Circuit have used . . . Rule 17(a) (3) to remedy

defects in standing they have generally done so where

the plaintiff clearly had standing on another claim

that it brought.”); In re SLM Corp. Sec. Litig., 258

F.R.D. 112, 116 (S.D.N.Y. 2009) (declining to approve

assignment of claims because “the majority of courts to

allow an assignment of claims after the onset of

litigation do so only where plaintiff had constitutional

standing on another claim”); Bd. for Managers of

Mason Fisk Condo. v. 72 Berry St., LLC, 801 F. Supp.

2d 30, 39-40 (E.D.N.Y. 2011) (Rule 17 “cannot expand

the Court’s jurisdiction” and cannot “retroactively cure

[a] jurisdictional deficiency.’ ”).12

*10 Because Klein has no standing, there is no

jurisdiction, and the action must be dismissed. See In

re Mercury Interactive Corp. Derivative Litig., 487 F.

Supp. 2d 1132, 1134-35 (N.D. Cal. 2007) (in a Section

16(b) lawsuit, also initiated by Klein and her counsel,

12

To be sure, there have been cases in which courts in this

Circuit have used Rule 17(a) to cure standing deficiencies. For

example, in Digizip.com Inc. v. Verizon Services Corp., 139 F.

Supp. 3d 670 (S.D.N.Y. 2015), upon which Klein relies, the court

held that the plaintiff had Article III standing, but lacked

prudential standing, which the court allowed plaintiff to cure

through Rule 17. The Court noted that the “use of Rule 17(a)(3)

does not expand the constitutional limits of standing.” Id. at 679.

See also In re Vivendi Universal, S.A. Secs. Litig., 605 F.Supp.2d

570, 584 (S.D.N.Y. 2009) (holding some plaintiffs had third party

standing, and those who did not could cure their standing

problems with assignments). Subsequent courts have

distinguished those decisions, noting that “where courts in this

Circuit have used of Rule 17(a)(3) to remedy defects in standing,

they have generally done so where the plaintiff clearly had

standing on another claim that it brought.” Clarex, 2012 WL

4849146, at *8.

56a

finding that plaintiff was divested of any interest in

the litigation by the sale of her shares in the issuer for

cash, and thus she lacked standing to pursue the

action on behalf of that issuer); see also Blasband v.

Rales, 971 F.2d 1034, 1041 (3d Cir. 1992) (applying

Delaware law and holding that “[w]here there has

been a cash-out merger, it is clear that a former

shareholder may not maintain a derivative action, for

he or she would no longer have an interest in a

subsequent corporate recovery. However, where . . . the

plaintiff receives shares of a new corporate entity, the

standing issue is less clear, as the plaintiff will have a

financial interest in the derivative action.”) (internal

citation omitted).

B. Motion to Substitute the Plaintiff

For the reasons discussed above, because the Court

no longer has jurisdiction over this matter, the Court

will not consider Plaintiff’s arguments on the merits

regarding substitution of Qlik as a Plaintiff. See Steel

Co., 523 U.S. at 101-02 (“For a court to pronounce

upon [the merits] when it has no jurisdiction to do so

. . . is . . . for a court to act ultra vires.”); Sikhs for

Justice Inc. v. Indian Nat’l Cong. Party, 17 F. Supp. 3d

334, 348 (S.D.N.Y.), aff’d sub nom. Sikhs for Justice,

Inc. v. Nath, 596 Fed.Appx. 7 (2d Cir. 2014) (“Given

that the Court lacks jurisdiction to hear Plaintiffs’

case, the Court will not reach dismissal on the

merits.”); Capellupo v. Webster Cent. Sch. Dist., No. 13

Civ. 6481 (EAW), 2014 WL 6974631, at *4 (W.D.N.Y.

Dec. 9, 2014) (“Because the Court concludes that it

lacks jurisdiction, it will not consider the merits-based

57a

arguments raised by Defendants because to do so

would be an exercise of jurisdiction.”).13

13

Even if the Court had standing to entertain Plaintiff’s

motion, the motion would fail. As the Second Circuit has

explained, the dismissal provision in Rule 17(a)(3) was added “to

avoid forfeiture and injustice when an understandable mistake

has been made in selecting the party in whose name the action

should be brought” and “codifies the modern judicial tendency to

be lenient when an honest mistake has been made in selecting the

proper plaintiff.” Cortlandt St. Recovery Corp., 790 F.3d at 421

(emphasis added); see also Bd. of Managers of Mason Fisk Condo.,

801 F. Supp. 2d at 40 (“Even if the Rule could retroactively cure

the jurisdictional deficiency, the Board has failed to show the

injustice or excusable mistake that courts have required before

applying Rule 17(a)(3).”). No such honest mistake in selecting the

proper party was made here. Section 16(b) clearly authorizes both

the issuer of the security traded in violation of Section 16(b) or

“the owner of any security of the issuer in the name and in behalf

of the issuer.” 15 U.S.C. § 78p(b). Here, Klein demanded that Qlik

sue Cadian based on their alleged short-swing trading, but Qlik

declined Klein’s demand to sue. Compl. ¶ 36. It was only after the

cash-out merger divested Klein of her shares—and thirteen

months after she filed the lawsuit—that Qlik decided to litigate

the Section 16(b) claims on its own behalf. In short, this is not a

classic Rule 17(a)(3) scenario where a litigant inadvertently failed

to bring a claim in the name of the real party in interest; Qlik was

not a plaintiff because it chose not to be a plaintiff. Additionally,

the modern function of Rule 17 is “to protect the defendant

against a subsequent action by the party actually entitled to

recover, and to insure generally that the judgment will have its

proper effect as res judicata.” Cortlandt St. Recovery Corp., 790

F.3d at 421. Neither of those risks are present here. Moreover,

Rule 25(c) addresses the addition of a party pursuant to a transfer

of interest that occurs after the filing of the complaint to bring a

successor in interest into court when “it has come to own the

property in issue.” Negrón-Almeda v. Santiago, 579 F.3d 45, 53

(1st Cir. 2009). Klein’s substitution motion based on Rule 25(c) is

inappropriate because Qlik is not a transferee of any interest of

Klein.

58a

IV. CONCLUSION

*11 For the reasons stated above, Cadian’s motion

to dismiss the Complaint is GRANTED and Klein’s

motion to substitute Qlik is DENIED. The Clerk of the

Court is respectfully directed to terminate the motions,

Docs. 31 and 37, and close the case.

It is SO ORDERED.

59a

APPENDIX C

United States Court of Appeals

for the Second Circuit

ORDER

Docket No. 17-3218

At a stated term of the United States Court of

Appeals for the Second Circuit, held at the Thurgood

Marshall United States Courthouse, 40 Foley Square,

in the City of New York, on the 30th day of November,

two thousand eighteen.

Terry Klein, derivatively on behalf

of Qlik Technologies, Inc.,

Plaintiff -Appellant,

v.

Qlik Technologies, Inc.,

Defendant-Appellant,

v.

Cadian Capital Management, LP,

Cadian Fund LP, Cadian Master Fund LP,

Cadian GP, LLC, Cadian Capital

Management GP, LLC, Eric Bannasch,

Defendants-Appellees.

Appellees, Cadian Capital Management, LP,

Cadian Fund LP, Cadian Master Fund LP, Cadian GP,

LLC, Cadian Capital Management GP, LLC, and Eric

Bannasch, filed a petition for panel rehearing, or, in

60a

the alternative, for rehearing en banc. The panel that

determined the appeal has considered the request for

panel rehearing, and the active members of the Court

have considered the request for rehearing en banc.

IT IS HEREBY ORDERED that the petition is

denied.

FOR THE COURT:

Catherine O’Hagan Wolfe, Clerk

/s/ Catherine O’Hagan Wolfe, Clerk

61a

APPENDIX D

RELEVANT CONSTITUTIONAL, STATUTORY,

AND RULE PROVISIONS

United States Constitution,

Article III, Section 2, Clause 1

Section 2.

The judicial Power shall extend to all Cases, in Law

and Equity, arising under this Constitution, the Laws

of the United States, and Treaties made, or which

shall be made, under their Authority;—to all Cases affecting Ambassadors, other public Ministers and

Consuls;—to all Cases of admiralty and maritime Jurisdiction;—to Controversies to which the United

States shall be a Party;—to Controversies between

two or more States;—between a State and Citizens of

another State;—between Citizens of different

States;—between Citizens of the same State claiming

Lands under Grants of different States, and between

a State, or the Citizens thereof, and foreign States,

Citizens or Subjects.

* * * * *

Securities Exchange Act of 1934, § 16(a)–(b),

15 U.S.C. § 78p(a)–(b)

§ 78p. Directors, officers, and principal stockholders

(a) Disclosures required

62a

(1) Directors, officers, and principal stockholders required to file

Every person who is directly or indirectly the

beneficial owner of more than 10 percent of any class

of any equity security (other than an exempted security) which is registered pursuant to section 78l of

this title, or who is a director or an officer of the issuer of such security, shall file the statements

required by this subsection with the Commission.

(2) Time of filing

The statements required by this subsection shall

be filed—

(A) at the time of the registration of such security on a national securities exchange or by the

effective date of a registration statement filed pursuant to section 78l(g) of this title;

(B) within 10 days after he or she becomes such

beneficial owner, director, or officer, or within such

shorter time as the Commission may establish by

rule;

(C) if there has been a change in such ownership, or if such person shall have purchased or sold

a security-based swap agreement involving such

equity security, before the end of the second business day following the day on which the subject

transaction has been executed, or at such other

time as the Commission shall establish, by rule, in

any case in which the Commission determines that

such 2-day period is not feasible.

(3) Contents of statements

A statement filed—

63a

(A) under subparagraph (A) or (B) of paragraph

(2) shall contain a statement of the amount of all

equity securities of such issuer of which the filing

person is the beneficial owner; and

(B) under subparagraph (C) of such paragraph

shall indicate ownership by the filing person at the

date of filing, any such changes in such ownership,

and such purchases and sales of the security-based

swap agreements or security-based swaps as have

occurred since the most recent such filing under

such subparagraph.

(4) Electronic filing and availability

Beginning not later than 1 year after July 30, 2002—

(A) a statement filed under subparagraph (C) of

paragraph (2) shall be filed electronically;

(B) the Commission shall provide each such

statement on a publicly accessible Internet site not

later than the end of the business day following

that filing; and

(C) the issuer (if the issuer maintains a corporate website) shall provide that statement on that

corporate website, not later than the end of the

business day following that filing.

(b) Profits from purchase and sale of security

within six months

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, any profit realized by him

64a

from any purchase and sale, or any sale and purchase,

of any equity security of such issuer (other than an

exempted security) or a security-based swap agreement involving any such equity security within any

period of less than six months, unless such security or

security-based swap agreement was acquired in good

faith in connection with a debt previously contracted,

shall inure to and be recoverable by the issuer, irrespective of any intention on the part of such beneficial

owner, director, or officer in entering into such transaction of holding the security or security-based swap

agreement purchased or of not repurchasing the security or security-based swap agreement sold for a

period exceeding six months. Suit to recover such

profit may be instituted at law or in equity in any

court of competent jurisdiction by the issuer, or by the

owner of any security of the issuer in the name and in

behalf of the issuer if the issuer shall fail or refuse to

bring such suit within sixty days after request or shall

fail diligently to prosecute the same thereafter; but no

such suit shall be brought more than two years after

the date such profit was realized. This subsection

shall not be construed to cover any transaction where

such beneficial owner was not such both at the time of

the purchase and sale, or the sale and purchase, of the

security or security-based swap agreement or a security-based swap involved, or any transaction or

transactions which the Commission by rules and regulations may exempt as not comprehended within the

purpose of this subsection.

* * * * *

65a

Federal Rule of Civil Procedure 17(a)

Rule 17. Plaintiff and Defendant; Capacity;

Public Officers

(a) REAL PARTY IN INTEREST.

(1) Designation in General. An action must be prosecuted in the name of the real party in interest. The

following may sue in their own names without joining

the person for whose benefit the action is brought:

(A) an executor;

(B) an administrator;

(C) a guardian;

(D) a bailee;

(E) a trustee of an express trust;

(F) a party with whom or in whose name a contract

has been made for another’s benefit; and

(G) a party authorized by statute.

(2) Action in the Name of the United States for Another’s Use or Benefit. When a federal statute so

provides, an action for another’s use or benefit must

be brought in the name of the United States.

(3) Joinder of the Real Party in Interest. The court

may not dismiss an action for failure to prosecute in

the name of the real party in interest until, after an

objection, a reasonable time has been allowed for the

real party in interest to ratify, join, or be substituted

into the action. After ratification, joinder, or substitution, the action proceeds as if it had been originally

commenced by the real party in interest.