WMD Obtains Dismissal of Bed Bath & Beyond Shareholder Lawsuit

SDNY District Court Judge Dale Ho has granted WMD’s motion to dismiss two consolidated actions brought by shareholders of Bed Bath & Beyond Inc. (“BBBY”) against Ryan Cohen and RC Ventures LLC (“RCV”) under Section 16(b) of the Securities Exchange Act of 1934, which allows recoupment of “short-swing” profits from directors and beneficial owners of over 10% of a corporation’s stock.

In early 2022, RCV bought less than 10% of BBBY’s outstanding shares based on BBBY’s then-current share-count disclosure. Well after RCV’s last purchase of shares, BBBY’s share- repurchase program reduced the number of outstanding shares and caused RCV’s interest to rise above 10% of BBBY’s total outstanding shares. RCV sold its BBBY stock in August 2022. After that sale, BBBY shareholders sued, alleging that RCV earned short-swing profits that could be recouped under Section 16(b) because at the time of the sale RCV beneficially owned more than 10% of BBBY’s stock, or alternatively, that RCV was a “director by deputization” due to its appointment of independent directors to BBBY’s Board.

RCV moved to dismiss. While that motion was pending, in April 2023, BBBY filed for bankruptcy. The confirmation of BBBY’s Chapter 11 plan in September 2023 cancelled all BBBY common stock. RCV then changed counsel and turned to WMD, who filed an amended motion to dismiss on November 8, 2023, contending that the cancellation of all outstanding shares deprived plaintiffs of any financial interest in the outcome of the lawsuit deprived the court of subject-matter jurisdiction. Subsequently, the BBBY estate moved to substitute as plaintiff, which all parties opposed.

In an Opinion and Order dated June 11, 2024, the United States District Court for the Southern District of New York (Ho, D.J.) granted WMD’s amended motion to dismiss, agreeing that plaintiffs’ claims were moot because the bankruptcy plan cancelled their stock in BBBY. The Court rejected the plaintiffs’ arguments that they had a sufficient financial interest to maintain the cases by separately buying stock of a creditor of BBBY or by their rights to a potential class representative reward and potential attorney fees. The Court also denied BBBY’s motion to substitute, holding that it acted in bad faith by claiming that its substitution would be “merely formal” while failing to submit a proposed amended complaint.

This action is captioned In re Bed Bath & Beyond Inc. Section 16(b) Litigation, No. 1:22-cv-09327-DEH (S.D.N.Y.).