Chechele v. Standard General Master Fund L.P.

Background

Donna Ann Gabriele Chechele brought a shareholder lawsuit under Section 16(b) of the Securities Exchange Act of 1934 on behalf of nominal defendant TEGNA, Inc. She sought recovery of alleged short-swing profits—profits from certain purchases and sales made within six months—by Standard General L.P., Standard General Master Fund L.P., and Soohyung Kim.

The challenged transactions involved TEGNA stock and equity swaps in March and April 2020. Chechele alleged that each Standard General defendant was a beneficial owner of more than 10% of TEGNA’s outstanding common stock and that the defendants realized millions of dollars in short-swing profits. TEGNA declined to pursue the claim after receiving Chechele’s demand letter.

The court had previously denied defendants’ motion to dismiss. In that earlier order, the court held that defendants’ retained voting power over shares they sold made them beneficial owners of more than 10% of TEGNA’s outstanding common stock. The court also rejected defendants’ arguments that the transactions were exempt from Section 16(b) liability. In addition, the court rejected defendants’ argument that the Supreme Court’s decision in Liu v. SEC prevented Chechele from adequately pleading profits under Section 16(b).

Motion for Immediate Appeal

Defendants moved under 28 U.S.C. § 1292(b) to certify the earlier order for an interlocutory appeal, meaning an appeal before the case reaches a final judgment. Section 1292(b) requires a controlling question of law, a substantial ground for disagreement about that question, and a showing that an immediate appeal may materially advance the end of the litigation. The party seeking certification bears the burden of satisfying all three requirements.

Defendants framed the proposed legal question as whether, after Liu, plaintiffs in Section 16(b) cases may still recover amounts calculated under the Second Circuit’s established “lowest price in, highest price out” method when those amounts exceed defendants’ actual net gains from the trades.

The court explained that the Second Circuit had used this method for nearly 80 years. Under it, qualifying purchases and sales within the relevant period are matched to determine the maximum recoverable profit. Defendants argued that Liu required a different approach because the Supreme Court held that an enforcement-related disgorgement award could not exceed a wrongdoer’s net profits and discussed the need to account for legitimate expenses.

Court’s Analysis

The court concluded that defendants had not shown a substantial ground for disagreement. It acknowledged that Liu involved principles potentially relevant to defendants’ argument, but emphasized differences between Liu and this case. Liu concerned the Securities and Exchange Commission’s authority to seek equitable relief in an enforcement action. Section 16(b), by contrast, expressly provides for recovery of short-swing profits by the issuer and permits suits “at law or in equity.”

The court also noted that the concerns identified in Liu were not present in the same way here: Section 16(b) recovery goes to the issuer rather than the public treasury, the law prevents double recovery, and expenses are deducted from the disgorgement calculation. The court stated that the dispute here concerned how to define and calculate “profits,” not whether proper disgorgement could exceed net profits.

The court further found that defendants had overstated the proposed issue’s precedential significance. Although defendants cited the number of companies and potential statutory insiders covered by Section 16(b), the court’s review showed that fewer than 20 Section 16(b) cases had been filed in the district in each of the several preceding years.

Finally, the court was not persuaded that an immediate appeal would materially advance the litigation. Defendants argued that a favorable appellate decision would end the case. Chechele argued that she could replead using terms such as “forfeiture” or “profits,” although the court was skeptical that changing those labels would avoid the legal issues. The court also noted that defendants had not proposed a replacement method for calculating profits and that an appeal could lead to additional litigation over a post-Liu calculation method.

Disposition

Judge Katherine Polk Failla denied defendants’ motion to certify the earlier order for interlocutory appeal. The clerk was directed to terminate the motion. The court stated that it would separately address defendants’ pending motion to stay the case based on Standard General’s agreement to acquire TEGNA.