Filed: April 1, 2010.
Opinion by Judge Richard D. Bennett.
Held: A closed-end fund registered under the Investment Company Act does not have standing to assert a private cause of action under sections 12(d)(1)(A) and 48(a) of the Investment Company Act of 1940.
Facts: Plaintiff, a closed-end fund, sued Defendants, alleged arbitrageurs, contending the Defendants breached the anti-pyramiding provision of the Investment Company Act of 1940 by illegally acquiring Plaintiff's voting stock and threatening to use the voting power in a proxy contest at Plaintiff's next shareholders' meeting. The anti-pyramiding provision is designed "to prevent a registered investment company from controlling other investment companies and creating complicated pyramid structures."
Defendants moved to dismiss. Both parties argued whether Plaintiff had standing to assert private causes of action under sections 12(d)(1)(A)(i) and 48(a) of the Act.
Analysis: In order to find the Plaintiff had standing, the Court must determine whether the statute displayed an intent to create both a private right and a private remedy. First, the statutory language must contain "rights-creating" language. Second, if such language is present, the Court must then interpret "whether the statute's remedial scheme entrust[s] government agencies or private parties with primary responsibility for statutory enforcement." See Alexander v. Sandoval, 532 U.S. 275 (2001).
Plaintiff argued that since the language of 12(d)(1)(A) focuses on the company whose shares are being targeted for purchase, the Plaintiff falls within the protected class and therefore has standing. The Court disagreed, finding the Act to protect individuals who invest in investment companies rather than the investment companies themselves. The Court found Plaintiff's argument to assume that an investment company would always resist another company's attempt to acquire an interest in the investment company. Yet, 12(d)(1)(A) prevents all inter-fund investments beyond certain levels, not merely hostile acquisitions.
The Court also addressed whether an individual investor has a right to bring a private cause of action under the provisions. The Court noted that while there is an initial focus on the individual, the remainder of the language imposes regulations upon investment companies. Also, following the second part of the analysis, the enforcement scheme is designed for the SEC alone.
The Court noted the distinction between relying on cases pre- and post-Sandoval when analyzing whether standing to assert a private cause of action is present.
The opinion is available in pdf.