Defendants for any alleged violations of 16(b). See 15 U.S.C. § 78p(b). It also had financial
incentive to do so. There is simply no evidence that Commerce One’s directors or officers were
“foxes” with respect to the GTCR Defendants’ transactions. Rosenberg’s analogy, and his argument
regarding an absurd result, does not merit deviation from the plain language of 16(b).

AppNet is the issuer in this case. So, only AppNet or an owner of its securities could sue
under the plain language of 16(b). Since Rosenberg owns no AppNet securities, but only shares of

its parent, Commerce One, he lacks standing. See, e.g., Portnoy v. Kawecki Berlylco Indus., Inc., 607

F.2d 765, 768 (7th Cir. 1979) (stockholder of grandparent company lacks standing to sue under

16(b)), partially overruled on other grounds by, Gollust, 501 U.S. 115; see also Lewis v. McAdam,

762 F.2d 800, 804 (9th Cir. 1985) (stockholder in parent company lacks standing); Heine v.

Computer Assoc. Int’], Inc., No. 93 CIV. 9027, 1994 WL 613304, at *1-2 (S.D.N.Y. Nov. 7, 1994)
(same); Untermeyer, 665 F. Supp. at 301, aff'd, 841 F.2d 25 (2d Cir. 1988) (same). If Rosenberg
believes that Commerce One, its directors or officers, failed to take the proper action, then his
remedy is to proceed, if he can, against them.

CONCLUSION

For the foregoing reasons, this Court GRANTS the defendants’ motion dismiss in its entirety.

Enter:

Dede.

David H- Coar
United States District Judge

Dated: AUG 14 2001

-4.


*

Section 16(b) prevents certain insiders from obtaining “short-swing profits” —i.e., profiting
by the sale of securities within a six-month period. See 15 U.S.C. § 78p(b); Gollust v. Mendel], 501
U.S. 115, 123 (1991). To enforce this provision, Congress created a private right of action for two
classes of people: namely, “the issuer, or . . . the owner of any security of the issuer in the name and
in behalf of the issuer [if certain conditions are met].” 15 U.S.C. § 78p(b). The definition of issuer
in this context is unmodified and does not encompass parent or subsidiary corporations. See Gollust,
501 U.S. at 123 (citing 15 U.S.C. § 78c(a)(8)). Congress knew how to and did broaden the term
issuer when it wanted to. See 15 U.S.C. § 77b(11) (“issuer” defined for certain purposes as “any
person directly or indirectly controlling or controlled by the issuer, or any person under direct or
indirect common control with the issuer.”) For purposes of 16(b), though, it did not do so.

Rosenberg does not argue that the language is ambiguous but implies two things: first, that
the legislative history of 16(b) is inconsistent with the assertion that there is a lack of standing; and
second, that limiting 16(b) to its plain language would produce an absurd result. The Court rejects
each of these contentions. The legislative history is far from abundant. See Gollust, 501 U.S. at 125.
Moreover, Rosenberg merely points to the Supreme Court’s characterization in Gollust of certain
portions of the legislative history. From that, he argues that Congress clearly intended to provide
standing to individuals with a financial incentive to sue. Even accepting this principle as true,
though, it is not contrary to the idea of providing standing to some but not all of those with such an
incentive. In sum, Rosenberg has not pointed to any legislative history that would justify deviating
from 16(b)’s plain language.

Also, limiting the private cause of action in 16(b) cases does not lead to an absurd result, or
to use Rosenberg’s analogy, one that leaves the proverbial fox guarding the chicken coop. After

Commerce One acquired all of AppNet’s stock in June 2000, it had standing to sue the GTCR

3-


Minute Order Foe (06/97)

oa b United States District Court, Northern District of [linois
MS
Name of Assigned Judge David H. Coar Sitting Judge if Other
or Magistrate Judge than Assigned Judge
CASE NUMBER 01 C 2389 DATE 8/14/2001
CASE Rosenberg v. GTCR Fund VI et al.
TITLE

[In the following box (a) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
of the motion being presented}

MOTION:
Defendants’ Motion to Dismiss
DOCKET ENTRY:
qd) oOo Filed motion of { use listing in “Motion” box above.]
(2) Go Brief in support of motion due
(3) QO Answer brief to motion due___. Reply to answer brief due
(4) o Ruling/Hearingon_____setfor___—_at
(5) Oo Status hearing [held/continued to] [set for/re-set for] on__—s—s set for at.
(6) Oo Pretrial conference [held/continued to] [set for/re-set for]on__—ssetfor__—s——at__
(7) o Trial [set for/re-set for] on at
(8) oO [Bench/Jury trial] [Hearing] held/continued to__at
(9) im} This case is dismissed [with/without] prejudice and without costs [by/agreement/pursuant to}
QOFRCP4(m) O General Rule21 OFRCP41(a)(1) [ FRCP41(a)(2).
do) [Other docket entry] For the reasons stated in the attached memorandum opinion and order, the

Defendants’ Motion to Dismiss [# 10] is GRANTED.

Dandl) be

(1) {For further detail see order attached to the original minute order.]

No notices required, advised in open court Documeiit

Number.

No notices required.

nuraber of notices

AUG 2 8 201

Notices mailed by judge's staff.

Notified counsel by telephone. date docketed,

docketing deputitials

STING

Docketing to mail notices.

Mail AO 450 form.

VS

Copy to juclge/magistrate judge.

courtroom
mel deputy's
initials

Date/time received in ;
central Clerk’s Office iting deputy tas



a

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS,
EASTERN DIVISION

ARON ROSENBERG, derivatively on
behalf of COMMERCE ONE, INC., a
Delaware Corporation.

Plaintiff, No. 00 C 2389
Vv.
GTCR FUND VI, L.P. and GTCR The Hon. David H. Coar
GOLDER RAUNER, L.L.C,
Defendants,

and DOCKETED

APPNET, INC., a Delaware Corporation AUG 2 8 2001

and COMMERCE ONE, INC.,

Nominal Defendants.

MEMORANDUM OPINION AND ORDER

Aron Rosenberg, as a shareholder and on behalf of Commerce One, Inc. sued the GTCR
Fund VI, and GTCR Golder Rauner, LLC for violating the short-swing profit provisions — Section
16(b) ~ of the Securities Exchange Act. See, 15 U.S.C. 78p(b). Commerce One and its wholly-
owned subsidiary AppNet Inc. are also named as nominal defendants. Rosenberg alleges that the
GTCR defendants acquired and later sold AppNet stock within a six-month period. The Defendants
moved to dismiss Rosenberg’s suit because he does not own any AppNet securities — a fact that
Rosenberg concedes. Asa result, they argue, he lacks standing under 16(b). For the reasons stated
below, the Court GRANTS the Defendants’ motion to dismiss.

Background

The GTCR defendants acquired 44,167 shares of preferred stock in AppNet sometime in

1998. Roughly a year later, AppNet became a publicly-traded company. At the same time as

AppNet’s initial public offering, the GTCR defendants swapped their preferred shares for 3,813,864

/G


A‘

shares of common stock. Less than six months later, the GTCR defendants, who allegedly owned
more then 10% of AppNet’s outstanding stock, sold 2,791,938 of their shares.

In June 2000, Commerce One merged with AppNet in a stock-for-stock trade. As a result,
AppNet became a wholly-owned subsidiary of Commerce One. Based on the GTCR defendants’
acquisition and sale of AppNet stock, Rosenberg alleges that they violated the short-swing profit
prohibition of the Securities Exchange Act. Although Rosenberg does not own any stock in AppNet,
he does own Commerce One stock and purports to sue on its behalf.

Discussion

The GTCR Defendants have moved to dismiss arguing that Rosenberg lacks standing to sue.'
The Defendants’ motion turns on the meaning of Section 16(b) of the Securities Exchange Act, 15
U.S.C. § 78p(b). The starting place for determining the meaning of a statute is the language itself.

See Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 756 (1975) (Powell, J. concurring). If

the language is unambiguous, it is generally conclusive. Id. Courts will effectuate the plain
meaning, unless doing so would be demonstrably at odds with a clearly expressed meaning set forth

in the legislative history, see Consumer Prod. Safety Comm’n v. GTE Sylvania, Inc., 447 U.S. 102,

108 (1980), or would lead to a result so absurd that Congress could not have intended it. See

Sorrells v. United States, 287 U.S. 435, 446 (1932).

' Rosenberg counters that the GCTR Defendants themselves lack standing to challenge

his standing. The Court disagrees. The cases upon which Rosenberg relies do not support his
position. Rather, in those cases the issue was whether 16(b) defendants could challenge the pre-suit
demand on the issuer corporation. See Conlan v. Monumental Corp., 524 F. Supp. 1023, 1028 (N.D.
fil. 1981); Morales v. Mylan Labs, 443 F. Supp..778, 779 (W.D. Pa. 1978); Blau v. Ogsbury, Fed.
Sec. L.Rep. (CCH) { 90,635, at 91,929 (S.D.N.Y. 1953). That is not an issue here. Defendants
alleged to have violated 16(b) can and do challenge a plaintiff's standing. See. e.g., Untermeryer
v. Valhi, Inc., 665 F. Supp. 297, 298 (S.D.N.Y. 1987).

2-