Chechele v. Laubies

Background

The plaintiffs were stockholders of nominal defendant Coty Inc. They brought one derivative claim under section 16(b) of the Securities Exchange Act of 1934, seeking to recover for Coty an alleged short-swing profit by Pierre Laubies. A derivative claim is brought by a shareholder on behalf of the company.

The opinion states that Laubies became Coty’s chief executive officer in November 2018 and served in that role until June 1, 2020. He also sat on Coty’s board during the relevant period. On August 30, 2019, he bought 262,000 shares of Coty Class A common stock at $9.5418 per share.

The plaintiffs alleged that Laubies agreed to sell 3,260,329 Coty common shares to Cottage Holdco B.V. on February 27, 2020, for $11.4937 per share. Laubies and Cottage initially reported that date in filings with the Securities and Exchange Commission. Coty’s filings also placed on February 27 agreements concerning Laubies’s preferred stock and his resignation.

After the plaintiffs demanded that Laubies return the alleged short-swing profit, Laubies and Cottage amended their filings on March 16, 2020, to state that the common-stock sale agreement was entered into on March 12, rather than February 27. The amended filings did not change the number of shares or the price. The complaint alleged that the later date was false and was intended to place the transaction outside section 16(b)’s six-month period. It sought recovery of $511,397.80, plus attorneys’ fees and costs.

Motions and legal standards

Coty moved to dismiss the amended complaint under Federal Rule of Civil Procedure 12(b)(6), or alternatively sought summary judgment. Laubies joined the motion. A Rule 12(b)(6) motion tests whether the complaint alleges enough facts to make the claim legally plausible; it does not resolve disputed facts. The defendants principally argued that the complaint did not plausibly allege that the binding sale agreement existed on February 27.

Section 16(b) requires a statutory insider to return to the issuer any profit from matching a purchase and sale of the issuer’s equity securities within six months. The opinion explains that liability requires a purchase, a sale, an insider, and a six-month period. The relevant transaction date is when the insider becomes irrevocably obligated to buy or sell for a definite consideration. The parties agreed that Delaware law governed the agreements, and the court noted that Delaware law does not require a written contract for a security sale to be enforceable.

Court’s analysis

The court held that the complaint plausibly alleged that the sale occurred on February 27, 2020. The initial filings by Laubies and Cottage expressly identified that date. The court also found the related Coty filings consistent with the plaintiffs’ account that the agreements connected to Laubies’s departure were reached together.

The court rejected the defendants’ request to treat the later filings as conclusive. It found the plaintiffs’ allegations plausible because the later filings changed only the date, after the plaintiffs demanded disgorgement, while leaving the quantity and price unchanged. The court also noted that Coty’s stock price had fallen sharply by March 12, making the unchanged $11.4937 price substantially higher than the stock’s then-current trading price. The court stated that discovery would test the competing accounts.

The defendants relied on a later written agreement containing additional tax provisions, related email correspondence, and a signature page sent on March 13. The court held that these materials did not make the plaintiffs’ claim implausible at the pleading stage. It found that discovery was needed to determine whether the tax provisions were material and when the parties reached agreement. The court also noted that the agreement’s stated closing deadline did not fit comfortably with the defendants’ position that the agreement was first reached on March 12.

The defendants separately argued that the heightened pleading standard for fraud under Rule 9(b) applied and that the complaint failed to meet it. The court said it was unnecessary to decide whether Rule 9(b) applied because the complaint satisfied that standard. The court identified the alleged false date, the March 16 amended filing, the filing with the Securities and Exchange Commission, and the alleged purpose of avoiding section 16(b) liability.

Disposition

The court denied the defendant’s motion to dismiss in its entirety. It also described the defendants’ alternative request for summary judgment as premature because discovery could develop facts material to the dispute. The formal conclusion states that the motion to dismiss was denied and directed the clerk to terminate the pending motions at docket numbers 15 and 24. The court scheduled an initial pretrial conference and anticipated expedited discovery.