Amicus Curiae Brief — Raging Capital Management, LLC, et al., Petitioners v. Brad Packer, Derivatively on Behalf of 1-800-Flowers.com, Inc.

No. 24-408

IN THE

Supreme Court of the United States

RAGING CAPITAL MANAGEMENT, LLC, et al.,

Petitioners,

v.

BRAD PACKER, DERIVATIVELY ON

BEHALF OF 1-800-FLOWERS.COM, INC.,

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF A PPEALS FOR THE SECOND CIRCUIT

BRIEF AMICUS CURIAE OF THE

FREEDOM AND JUSTICE FOUNDATION,

INC. IN SUPPORT OF PETITIONERS

DAVID C. MCGRAIL

Counsel of Record

MCGRAIL & BENSINGER LLP

888-C Eighth Avenue, #107

New York, NY 10019

(646) 285-8476

dmcgrail@mcgrailbensinger.com

Counsel for Amicus Curiae

120086

A

(800) 274-3321 • (800) 359-6859

i

TABLE OF CONTENTS

Page

TABLE OF CONTENTS. . . . . . . . . . . . . . . . . . . . . . . . . . i

TABLE OF CITED AUTHORITIES . . . . . . . . . . . . . . iii

INTEREST OF THE AMICUS CURIAE . . . . . . . . . . .1

SUMMARY OF ARGUMENT . . . . . . . . . . . . . . . . . . . . .1

ARGUMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

I.

CON TR A RY TO ITS STAT ED

PURPOSE, SECTION 16(B) FUNCTIONS

TO ENRICH ENTREPRENERI A L

L AW Y E R S A N D U N H A R M E D

ISSUERS BY SUING FAULTLESS

DEFENDANTS . . . . . . . . . . . . . . . . . . . . . . . . . . .3

II. THE SECOND CIRCUIT HAS BECOME

THE “G O -TO” V ENU E FOR THE

“16(b) BAR.”. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5

III. O T H ER C OU RT S A N D E X PERT

C O M M E N T O R S H AV E L O N G

RECOGNIZED THAT NO HARM TO

THE ISSUER RESULTS FROM A

SECTION 16(b) VIOLATION. . . . . . . . . . . . . . . .7

ii

Table of Contents

Page

IV. UNLESS THE COURT INTERVENES,

PACK ER ’ S EXCEP T ION T O T H E

COURT’S HOLDING IN TRANSUNION

THAT “STANDING IS NOT DISPENSED

IN GRO S S ” W ILL BE T HE L AW

OF THE LAND . . . . . . . . . . . . . . . . . . . . . . . . . .10

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

iii

TABLE OF CITED AUTHORITIES

Page

Cases

Am. Standard, Inc. v. Crane Co.,

410 F.2d 1043 (2d Cir. 1974). . . . . . . . . . . . . . . . . . . . . .9

Blau v. Rayette-Faberge, Inc.,

389 F.2d 469 (2d Cir. 1968) . . . . . . . . . . . . . . . . . . . . . .8

Champion Home Builders Co. v. Jeffress,

490 F.2d 611 (6th Cir. 1974) . . . . . . . . . . . . . . . . . . . . . .8

Donoghue v. Bulldog Investors Gen. P’ship,

696 F.3d 170 (2d Cir. 2012),

cert. denied, 569 U.S. 994 (2013) . . . . . . . . . . . . .1, 2, 7

Foremost-McKesson v. Provident Securities,

423 U.S. 232 (1976). . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

General American Investors Co., Inc. v.

Commissioner,

19 T.C. 581 (1952), DIÀUPHG211 F.2d 522

(2d Cir. 1954), DIÀUPHG348 U.S. 434 (1955) . . . . . . . .8

Gollust v. Mendell,

501 U.S. 115 (1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

Heublein, Inc. v. General Cinema Corp.,

559 F. Supp. 692 (S.D.N.Y. 1983) . . . . . . . . . . . . . . . . .9

iv

Cited Authorities

Page

Liu v. SEC,

140 S. Ct. 1936, 207 L. Ed. 2d 401 (2020) . . . . . . . . . .6

Park & Tilford Distillers Corp. v. United States,

107 F. Supp. 941 (Court of Claims 1952) . . . . . . . . . . .8

Reliance Electric Co. v. Emerson Electric Co.,

404 U.S. 418 (1972) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

Simmonds v. Credit Suisse Sec. (USA) LLC,

638 F.3d 1072 (9th Cir. 2011). . . . . . . . . . . . . . . . . . . . .9

Smolowe v. Delendo Corp.,

136 F.2d 231 (2d Cir. 1943) . . . . . . . . . . . . . . . . . . . .6, 8

Spokeo, Inc. v. Robins,

578 U.S. 330 (2016) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

TransUnion v. Ramirez,

594 U.S. 413 (2021) . . . . . . . . . . . . . . . . . . . 1, 2, 7, 10, 11

TransUnion. Packer v. Raging Capital Mgmt.,

105 F.4th 46 (2d Cir. 2024). . . . . . . . . . . . . 1, 2, 7, 10, 11

Constitutional Provisions

U.S. Const. art. III . . . . . . . . . . . . . . . . . . . . . . . . .1, 2, 4, 7

v

Cited Authorities

Page

Statutes, Rules and Regulations

Federal Rules of Civil Procedure, Rule 23.1 . . . . . . . . . .6

Secur ities Exchange Act of 1934,

Section 16(b) . . . . . . . . . . . . . . . . . . . .1, 3, 4, 5, 6, 7, 8, 9

Securities Exchange Act of 1934, Section 28(a)(1) . . . . .6

Other Authorities

Donald C. Langevoort, Insider Trading and

the Fiduciary Principle: A Post-Chiarella

Restatement, California Law Review, Vol. 70,

No. 1 (Jan. 1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

Kenneth L. Yourd, Trading in Securities by

'LUHFWRUV2IÀFHUVDQG6WRFNKROGHUV6HFWLRQ

of The Securities Exchange Act, Michigan Law

Review, Vol. 38, No.2 (December 1939) . . . . . . . . . . . .7

Louis Loss and Joel Selig man, Secur ities

Regulation (3d ed. 1990) . . . . . . . . . . . . . . . . . . . . . . . .9

Richard W. Jennings, Harold Marsh, Jr., and John

C. Coffee, Jr., Securities Regulation: Cases

And Materials (7th ed. 1992) . . . . . . . . . . . . . . . . . . . .4

Second-Circuit-Says-that-Insiders-Are-StillStanding-to-Enforce-Short-Swing-TradingUnder-Section-16b-of-the-Exchange-Act.pdf. . . . . .10

1

INTEREST OF THE AMICUS CURIAE1

The Freedom And Justice Foundation, Inc. is a

Section 501(c)(3) corporation whose purpose is to promote

and defend freedom and justice. A principal of Amicus

&XULDH LV DQ DIÀOLDWH RI WKH GHIHQGDQW LQ Donoghue v.

Bulldog Investors Gen. P’ship, 696 F.3d 170 (2d Cir. 2012),

cert. denied, 569 U.S. 994 (2013) (“Donoghue”) which held

that Article III standing is always present in connection

with an action brought to enforce Section 16(b) of the

Securities Exchange Act of 1934. Relying on TransUnion

v. Ramirez, 594 U.S. 413 (2021) (“TransUnion”), the

District Court in this action held that TransUnion

effectively overruled Donoghue and that Respondent, who

claimed only a violation of Section 16(b), lacked Article

III standing. On appeal, the Second Circuit reversed,

holding that Donoghue was consistent with TransUnion.

Packer v. Raging Capital Mgmt., 105 F.4th 46 (2d Cir.

2024) (“Packer”). Amicus believes Packer was wrongly

decided and for the reasons presented below, the Court

should grant the petition.

SUMMARY OF ARGUMENT

Donoghue held that Section 16(b) (i) “effectively

PDNHV  EHQHÀFLDO RZQHUV ÀGXFLDULHV . . . at least to

the extent of making all short-swing transactions [i.e.,

trades made within a six month period] by such persons

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at least 10 days prior to the deadline. No counsel for any party

authored this brief in whole or in part, and no counsel or party

made a monetary contribution intended to fund the preparation or

submission of this brief. No person other than the Amicus Curiae

made a monetary contribution to its preparation or submission.

2

in the issuer’s stock ‘breaches of trust,’” (ii) “confer[s]

upon [the issuer] an enforceable legal right to expect [such

EHQHÀFLDORZQHUV@WRUHIUDLQIURPHQJDJLQJLQDQ\VKRUW

swing trading in its stock [and] (iii) [t]he deprivation of this

right establishes Article III standing.” (internal quotation

marks and citations omitted). The Packer panel concluded

that nothing in Spokeo, Inc. v. Robins, 578 U.S. 330 (2016)

(“Spokeo”) or in TransUnion undermined Donoghue’s

rationale and therefore concluded that “Donoghue remains

good law.”

In other words, Packer holds that every Section 16(b)

plaintiff meets the injury-in-fact requirement for Article

III standing without the need to assert an actual injury

arising from the securityholder defendant’s alleged

YLRODWLRQ RI WKH VWDWXWH ,W LV GLIÀFXOW WR VHH Packer’s

circular reasoning as good faith applications of Spokeo

and TransUnion, each of which rejected the proposition

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fact requirement whenever a statute grants a person a

statutory right and purports to authorize that person to

sue to vindicate that right.” To the contrary, many experts

and other courts have observed that an issuer suffers no

concrete harm from so-called short swing trading per se.

Consequently, unless the Court grants the petition and

overrules Packer, the Second Circuit is almost certain to

become the sole venue for all Section 16(b) lawsuits and

would therefore effectively have established a nationwide

exception to the Court’s holding in TransUnion that

“standing is not dispensed in gross.”

3

ARGUMENT

I.

CON T R A RY T O I T S STAT ED PU RPO SE ,

SECTION 16(B) FU NCTIONS TO ENRICH

E N T R E P R E N E R I A L L AW Y E R S A N D

UNHARMED ISSUERS BY SUING FAULTLESS

DEFENDANTS.

The express purpose of Section 16(b) is to “[prevent]

the unfair use of information which may have been

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of issuers by compelling them to turn over any realized

gains on their so-called “short swing” trading to the

issuer. Inside information is non-public information that is

KLJKO\OLNHO\WRVLJQLÀFDQWO\DIIHFWWKHPDUNHWSULFHRIDQ

issuer’s securities when it is made public. Therefore, one

would think that a description of the allegedly misused

inside information would be front and center in every

Section 16(b) complaint. To the contrary, almost every

Section 16(b) complaint is devoid of an allegation that

inside information existed at the time of the short swing

trades. And, for good reason, i.e., in almost every case,

no such information actually existed.

In practice, Section 16(b) lawsuits have nothing to do

with insider trading. Instead, they have become a source

of income for a group of entrepreneurial lawyers whose

VROHJRDOLVWRJHQHUDWH´FRPPRQEHQHÀWµIHHVE\VXLQJ

unsuspecting and faultless 10% shareholders without

alleging the existence of any inside information, let alone

its misuse. In their authoritative textbook, Professors

Jennings, Marsh, and Coffee succinctly summed it up:

“Judging solely from the facts stated in the opinions in the

decided cases, the function of Section 16(b) would appear

4

to be to impose unjust liability upon entirely innocent

persons.” Richard W. Jennings, Harold Marsh, Jr., and

John C. Coffee, Jr., Securities Regulation: Cases And

Materials, (7th Ed., 1992).

Indeed, this Court has expressed its discomfort with

Section 16(b)’s inequity. Foremost-McKesson v. Provident

Securities, 423 U.S. 232, (1976) (“Foremost-McKesson”)

(“It is inappropriate to reach the harsh result of imposing

§ 16 (b)’s liability without fault on the basis of unclear

language. . . . ‘In § 16(b) Congress sought to ‘curb the

evils of insider trading [by] . . . WDNLQJWKHSURÀWVRXWRI

a class of transactions in which the possibility of abuse

was believed to be intolerably great.’” Id. (citing Reliance

Electric Co. v. Emerson Electric Co., 404 U.S. 418, (1972)).

If, as in this (and almost every Section 16(b)) case, no inside

information existed at the time of the short swing trades,

then suing a statutory insider to compel disgorgement of

KLVSURÀWVIURPVXFKWUDGHVFDQQRWSRVVLEO\GHWHUWKHXVH

of inside information.

Although the Court recognized “the harsh result of

imposing § 16 (b)’s liability without fault” in ForemostMcKesson, it failed to discern that neither is Section 16(b)

conditioned on an injury-in-fact to the issuer. However,

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passing, that an issuer claiming a violation of Section 16(b)

must also assert an injury-in-fact. Gollust v. Mendell, 501

U.S. 115, 126 (1991) (“Gollust”) (“Art. III’s requirement

remains: the plaintiff still must allege a distinct and

palpable injury to himself.”) Unfortunately, the Gollust

Court failed to determine whether that requirement was

met in that instance (even though no facts contained in

the opinion indicate that it did). Granting this petition will

5

afford the Court an opportunity to correct that oversight

in a Section 16(b) case similarly lacking any allegation of

an injury-in-fact.

There is a group of entrepreneurial lawyers whose

practice is focused on suing statutory insiders that

(almost invariably) have inadvertently run afoul of Section

16(b). No need to allege that any inside information

existed, let alone that any was misused. The business

model of these lawyers is more or less as follows. First,

HPSOR\ D FRPSXWHU SURJUDP WR PRQLWRU 6(& ÀOLQJV WR

ÀQGDSRWHQWLDOYLRODWLRQRI6HFWLRQ E 1H[WGLUHFWD

ÀJXUHKHDGSODLQWLIIWRSXUFKDVHDIHZVKDUHVLQWKHVXEMHFW

issuer, after which said plaintiff will have no role (but who

presumably may receive some sort of quid pro quo for his

“services”). Then send a demand letter to the issuer that

was “victimized” by the short-swing trades. If, as is often

the case, the issuer fails to pursue a claim within 60 days,

likely because it has not been harmed by the alleged short

VZLQJWUDGHVWKHODZ\HUXVLQJWKHÀJXUHKHDGFOLHQWDV

a proxy, brings a claim directly against the violator on

behalf of the issuer with the goal of obtaining a fee payable

from the disgorged amount. In sum, the sole goal of these

lawyers is to generate legal fees for enforcing a “gotcha”

statute, not to prevent the misuse of (non-existent) inside

information.

II. THE SECOND CIRCUIT HAS BECOME THE

“GO-TO” VENUE FOR THE “16(b) BAR.”

The vast majority Section 16(b) actions are brought in

the Southern District of New York where the “16(b) bar” is

ORFDWHG,QODUJHSDUWWKDWLVEHFDXVHIURPWKHYHU\ÀUVW

Section 16(b) case until today, the SDNY and the Second

6

Circuit have been inclined to issue rulings on contentious

aspects of the statute that favor plaintiffs. Some examples:

• The requirement of Rule 23.1 that the plaintiff in

a derivative action must be a shareholder at the

time of the infraction does not apply to Section

16(b) actions.

• State law making the purchase of a security for

the sole purpose of litigation a criminal offense

is not a defense in a Section 16(b) action nor does

it bar the award of attorney fees.

• Although Section 16(b) calls for disgorgement of

“any SURÀW UHDOL]HGµ D FRXUWFUHDWHG DWH[WXDO

formula is applied to “[maximize] the disgorgeable

amount . . . by matching the highest sale prices

with the lowest purchase prices within the six

month period.”) (Emphasis added.) Smolowe v.

Delendo Corp., 136 F.2d 231, 239 (2d Cir. 1943)).

This formula is patently inequitable and is in

tension with Liu v. SEC, 140 S. Ct. 1936, 207

L. Ed. 2d 401 (2020).

• Although the issuer may have no actual damages,

courts in the Second Circuit refuse to apply

Section 28(a)(1) of the Securities Exchange Act of

1934, which states, in relevant part: “No person

permitted to maintain a suit for damages under

the provisions of this title shall recover . . . a total

amount in excess of the actual damages to that

person on account of the act complained of.”

7

Donoghue and Packer continue this tradition by

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shareholders the breach of which constitutes an injuryin-fact for all plaintiffs.

III. OTHER COURTS AND EXPERT COMMENTORS

HAVE LONG RECOGNIZED THAT NO HARM TO

THE ISSUER RESULTS FROM A SECTION 16(b)

VIOLATION.

7KH 3HWLWLRQ DEO\ GHFLVLYHO\ HVWDEOLVKHV WKH FRQÁLFW

between Packer’s one-step analysis to determine Article

III standing and the two-step approach set forth in

TransUnion and employed by other Circuit Courts. In

addition, there is a stark difference between Packer’s

holding that an injury-in-fact exists in every Section 16(b)

case and the contrary view expressed by many experts

and other courts, including those by and within the Second

Circuit, that there is no such injury. The Packer panel

did not attempt to reconcile its position with any of them.

Here are some examples:

• “The recovery under the statute smacks more

of being in the nature of a penalty paid for

having engaged in a forbidden transaction

than of being compensation for an injury

LQÁLFWHG)RULWLVGLIÀFXOWWRGHWDLODQ\FHUWDLQ

injury to a corporation from the fact of active

trading in its shares. . . .” Kenneth L. Yourd,

Trading in Securities by Directors, Officers

DQG6WRFNKROGHUV6HFWLRQRI7KH6HFXULWLHV

Exchange Act, Michigan Law Review, Vol. 38,

No.2 (December 1939)

8

• “[T]he sum recovered [was] for a penalty payable

to the corporation.” Smolowe v. Delendo Corp.,

136 F.2d 231 (2d Cir. 1943)

• “We see no reason for not giving the statutory

language its natural meaning, as to the money

here in question. It was, to be sure, a ‘windfall’ to

the plaintiff.” Park & Tilford Distillers Corp. v.

United States, 107 F. Supp. 941 (Court of Claims

1952)

• “In the present instance . . . the Section 16

(b) recovery was not a restitution to make the

issuer whole for a loss of corporate profits,

or even of corporate capital; it was a pure

windfall. . . .” General American Investors

Co., Inc. v. Commissioner, 19 T.C. 581, (1952),

DIÀUPHG  )G  G &LU   DIÀUPHG

348 U.S. 434 (1955)

• “It has been pointed out that in a larger sense

any 16(b) award to the corporation is essentially

a windfall, since the corporation has suffered no

harm for which it is being recompensed.” Blau v.

Rayette-Faberge, Inc., 389 F.2d 469 (2d Cir. 1968)

• “[T]he absence of corporate damage is not a

factor in assessing § 16(b) liability. Oftentimes

the corporation will suffer no measurable damage

or may even be an unwilling beneficiary of

WKHVHSURÀWVµChampion Home Builders Co. v.

Jeffress, 490 F.2d 611 (6th Cir. 1974)

9

• “[E]very § 16(b) recovery may be deemed to

partake of windfall. . . .” Am. Standard, Inc. v.

Crane Co., 410 F.2d 1043 (2d Cir. 1974)

• “From the corporation’s standpoint, there is

rarely direct harm resulting from the insider’s

sale or purchase. . . .” Donald C. Langevoort,

Insider Trading and the Fiduciary Principle:

A Post-Chiarella Restatement, California Law

Review, Vol. 70, No. 1 (Jan., 1982)

• “The only people who were injured if General

Cinema has, in fact, done something improper are

the former shareholders of Old Heublein who sold

their stock to General Cinema during the period

when General Cinema made its open-market

purchases.” Heublein, Inc. v. General Cinema

Corp., 559 F. Supp. 692 (S.D.N.Y. 1983)

• “Recovery under the Section aids not the persons

injured—those who bought from or sold to the

insider—but the corporation which suffered no

injury.” Louis Loss and Joel Seligman, Securities

Regulation at 2319 (3d ed. 1990)

• “Section 16(b) exists to remedy harms suffered by

the general investing public, not harms suffered

by issuing corporations.” Simmonds v. Credit

Suisse Sec. (USA) LLC, 638 F.3d 1072, 1095-97

(9th Cir. 2011)

10

IV. UNLESS THE COURT INTERVENES, PACKER’S

EXCEPTION TO THE COURT’S HOLDING

IN TRANSUNION THAT “STANDING IS NOT

DISPENSED IN GROSS” WILL BE THE LAW OF

THE LAND.

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in district courts within the Second Circuit. Unless the

Court intervenes, it is safe to assume that no members

of the 16(b) bar will sue in any other Circuit because, as

one commenter has noted, “the Second Circuit [is where]

they will be assured of getting past the standing question.”

(Available at Second-Circuit-Says-that-Insiders-AreStill-Standing-to-Enforce-Short-Swing-Trading-UnderSection-16b-of-the-Exchange-Act.pdf.) In essence, if

Packer stands, the Second Circuit will forever be the

sanctuary jurisdiction for Section 16(b) plaintiffs and it

will have effectively created a nationwide exception to

TransUnion’s holding that “standing is not dispensed in

gross.”

11

CONCLUSION

Pa cker ’s rea son i ng is ci rcu la r a nd pat ently

incompatible with a fair reading of TransUnion. That

makes this case one of the easiest ones the Court will ever

consider. Yet, the implications of avoiding it are ominous

because that will enable the Second Circuit to effectively

defy the Supreme Court by carving out a nationwide

exception to TransUnion’s holding that “standing is not

dispensed in gross.” For that reason and the others set

forth herein, the petition should be granted.

Respectfully submitted,

DAVID C. MCGRAIL

Counsel of Record

MCGRAIL & BENSINGER LLP

888-C Eighth Avenue, #107

New York, NY 10019

(646) 285-8476

dmcgrail@mcgrailbensinger.com

Counsel for Amicus Curiae

November 1, 2024