Microbot Medical, Inc. v. Alliance Investment Management, Ltd. ( 2024 )

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ee x MICROBOT MEDICAL, INC., : Plaintiff, : MEMORANDUM DECISION “against- AND ORDER JOSEPH MONA, 19 Civ. 3782 (GBD) (RWL) Defendant. eee ee eee ee ee ee ee Kee x GEORGE B. DANIELS, United States District Judge: Plaintiff Microbot Medical, Inc. (“Microbot”) brought this action to recover short-swing profits against Defendant Joseph Mona (“Mona”) under § 16(b) of the Securities Exchange Act of 1934, 15 US.C. § 78p(b), alleging that Mona profited from the purchase and sale of Microbot securities within a six-month period while owning more than 10% of the company’s stock. (Second Am, Compl., ECF No. 44, {§ 1-3.) On March 30, 2021, this Court granted Plaintiff's motion for judgment on the pleadings. (Order Adopting R. & R., ECF No, 106.) The next day, judgment was entered against Defendant in the amount of $484,614.30.' (Clerk’s J., ECF No. 107.) On April 12, 2023, Defendant filed a motion to vacate the judgment and to dismiss the case based on lack of standing under Article III of the Constitution. (Mot. to Dismiss for Lack of Jurisdiction (“Defendant’s Motion”), ECF No. 220.) Before this Court is Magistrate Judge Robert W. Lehrburger’s January 30, 2024 Report and Recommendation (“Report”) recommending that Defendant’s Motion be denied. (Report, ECF No. ' Execution on the judgment was stayed pending the resolution of a counterclaim asserted by Defendant. (See Order, ECF No, 152; R. & R., ECF No. 251, at 1.) This Court dismissed Defendant’s counterclaim with prejudice on August 22, 2023. (Mem. Decision & Order, ECF No. 233.) 251.) Defendant filed timely objections to the Report, and Plaintiff filed a timely response to the Objections. (Def.’s Objs. (“Objections”), ECF No, 258; PI.’s Resp. (“Response”), ECF No. 263.) Having reviewed the Report de novo, this Court OVERRULES the Objections and ADOPTS the Report in its entirety, I. LEGAL STANDARDS A, Reports and Recommendations of a Magistrate Judge A reviewing court “may accept, reject, or modify, in whole or in part, the findings or recommendations” made within a magistrate judge’s report. 28 U.S.C. § 636(b)(1)(C). The court must review de novo the portions of a magistrate judge’s report to which a party properly objects. /d. Portions of a magistrate judge’s report to which no or “merely perfunctory” objections have been made are reviewed for clear error. Edwards v. Fischer, 414 F. Supp. 2d 342, 346-47 (S.D.N.Y. 2006). Clear error is present when “upon review of the entire record, [the court is] left with the definite and firm conviction that a mistake has been committed.” Brown v. Cunningham, No. 14-CV-3515 (VEC) (MHD), 2015 WL 3536615, at *4 (S.D.N.Y. June 4, 2015) (citations omitted). B. Motion to Vacate for Lack of Subject Matter Jurisdiction A district court may relieve a party from a final judgment where “the judgment is void.” Fed. R. Civ. P. 60(b)(4). “[A] void judgment is one so affected by a fundamental infirmity that the infirmity may be raised even after the judgment becomes final.” United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260, 270 (2010) (citing Restatement (Second) of Judgments § 22 (1982)). One such infirmity is the absence of subject matter jurisdiction. See United Nat'l. Ins. Co. v. Waterfront N.Y. Realty Corp., 907 F. Supp. 663, 668 (S.D.N.Y. 1995); see also Lynonville Sav. Bank & Tr. Co. v, Lussier, 211 F. 3d 697, 700 (2d Cir, 2000) (“[F]ailure of subject matter jurisdiction is not waivable and may be raised at any time by a party or by the court sua sponte.”), A judgment that is void under Rule 60(b)(4) because the court lacks subject matter jurisdiction must be vacated. United Nat'l Ins. Co., 907 F. Supp. at 668. Under Article III of the Constitution, a federal court’s subject matter jurisdiction is lnmited to resolving “Cases” or “Controversies.” U.S. Const. art. IE, §§ 1-2; see Raines v. Byrd, 521 U.S. 811, 818 (1997) (citation omitted) (“No principle is more fundamental to the judiciary’s proper role in our system of government than the constitutional limitation of federal-court jurisdiction to actual cases or controversies.”). To satisfy the “case or controversy” requirement of Article II, a plaintiff must have standing. See Spokeo, Inc. v. Robins, 578 U.S. 330, 338 (2016) (“Standing to sue is a doctrine rooted in the traditional understanding of a case or controversy.”). “Colloquially, standing means that a plaintiff has a ‘personal stake” in the dispute.” (Report at 3 (quoting Raines, 521 U S. at 819).) In legal terms, constitutional standing has three elements; (1) the plaintiff suffered an injury in fact; (2) there is “a causal connection between the injury and the conduct complained of;” and (3) the injury likely will be redressed by judicial relief. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992). The plaintiff bears the burden to prove each element. See id. at 562. Defendant’s Motion in the instant case argues that Plaintiff did not allege or otherwise demonstrate an “injury in fact” sufficient to support Article III standing. (See Mem. L. Supp. □□□□□□□ Mem.”), ECF No, 221, at 4.) Injury in fact is defined as “an invasion of a legally protected interest which is (a) concrete and particularized . . . and (b) actual or imminent, not conjectural or hypothetical.” Lujan, 504 U.S, at 560 (citations and internal quotation marks omitted). Il. THE REPORT IS ADOPTED IN ITS ENTIRETY A. The Report Accurately Characterized § 16(b) and Article IIT Standing Caselaw i. Article I Standing in § 16(b) Cases § 16(b) of the Securities Exchange Act “requires directors, officers, and beneficial owners of more than ten percent of a company’s stock to disgorge their profits ‘realized from the purchase and sale, or sale and purchase, of such stock occurring within a 6-month period.’” (Report at 3 (quoting Gollust v. Mendell, 501 U.S. 115, 117 (1991)).) The statute “authorizes the issuer — or owner of the security, if the issuer fails to act diligently - to sue for relief and receive the disgorged profits.” (Report at 4 (citing 15 U.S.C. § 78p(b); Donoghue v. Bulldog Invs. Gen. P’ship, 696 F.3d 170, 174 (2d Cir, 2012)).) The statute’s purpose is to prevent “the unfair use of information which may have been obtained by [a] beneficial owner, director, or officer by reason of his relationship to the issuer.” 15 U.S.C. § 78p(b). To achieve this purpose, § 16(b) removes the profits from an entire “class of transactions in which the possibility of abuse was believed to be intolerably great.” Bulldog, 696 F.3d at 174 (quoting Reliance Elec. Co. v, Emerson Elec, Co., 404 U.S. 418, 422 (1972)). Imposing “a form of strict liability,” § 16(b) applies even to those who might have violated it inadvertently. □□□ (quoting Credit Suisse Sec. (USA) LLC v. Simmonds, 566 U.S, 221, 223 (2012)). As to Article III standing in § 16(b) suits, the Second Circuit held in Donoghue vy. Bulldog Investors General Partnership that “short-swing trading in an issuer's stock by a 10% beneficial owner... causes injury to the issuer sufficient for constitutional standing.” 696 F.3d at 180. In affirming that the Bulldog plaintiff satisfied the injury-in-fact requirement, the Second Circuit explained that an issuer “has an interest in maintaining a reputation of integrity, an image of probity, for its § 16(b) insiders and in insuring the continued public acceptance and marketability of its stock.” Id, at 177-78 (citation and internal quotation marks omitted). To protect this interest, § 16(b) confers on issuers a legal right that “makes 10% beneficial owners ‘constructive trustee[s] of the corporation’ with a fiduciary duty not to engage in short-swing trading of the issuer's stock . . . . It is the invasion of this legal right... that causes an issuer injury in fact.” Jd at 179 (quoting Gratz Claughton, 187 F.2d 46, 48 (2d Cir. 1951)). In other words, the violation of § 16(b) constitutes a breach of statutorily- imposed fiduciary duty and thereby results in a constructive trust containing the profits reaped from the violation. The issuer has a legal right to the profits contained in the constructive trust. ii, = TransUnion Defendant argues that the Supreme Court’s decision in TransUnion LLC v, Ramirez, 594 U.S. 413 (2021), which addressed standing under the Fair Credit Reporting Act (“F CRA”), 15 ULS.C, § 1681 ef seqg., overruled Bulldog. (Def.’s Mem. at 7, Report at 5.) In TransUnion, the Supreme Court expanded on the Article TIT injury-in-fact requirement for suits brought to vindicate statutory rights. 594 U.S. at 426. The Supreme Court explained that a plaintiff does not “automatically satisfy] the injury-in-fact requirement whenever a statute grants a person a statutory right,” Jd. (quoting Spokeo, 578 U.S. at 341). To satisfy the injury-in-fact requirement, a plaintiff must allege a concrete harm that resulted from the defendant’s violation of a statute. Jd. at 427, That concrete harm must be a “physical, monetary, or cognizable intangible harm traditionally recognized as providing a basis for a lawsuit in American courts.” Id