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22-1156

Donoghue v. Tannenbaum

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A 

SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY 

FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN 

CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE 

EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION 

“SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON 

ANY PARTY NOT REPRESENTED BY COUNSEL. 

At a stated term of the United States Court of Appeals for the Second Circuit, held at the 

Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the 

20th day of July, two thousand twenty-three.

Present:

JOHN M. WALKER, JR.,

WILLIAM J. NARDINI,

EUNICE C. LEE,

Circuit Judges.

____________________________________

DENNIS J. DONOGHUE, as the Administrator of 

the ESTATE OF DEBORAH DONOGHUE, MARK 

RUBENSTEIN,

Plaintiffs-Appellants,

v. 22-1156

LEONARD M. TANNENBAUM,

Defendant-Appellee,

OAKTREE SPECIALTY LENDING CORPORATION,

Nominal Defendant.

For Plaintiffs-Appellants: MIRIAM TAUBER (James A. Hunter, Law Office of 

James Austin Hunter, Pipersville, PA; David Lopez, 

Law Office of David Lopez, Southampton, NY, on 

the brief), Miriam Tauber Law PLLC, New York, 

NY.
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For Defendant-Appellee: JEFFREY A. UDELL (Christopher J. Dioguardi, on the 

brief), Walden Macht & Haran LLP, New York, NY.

Appeal from a judgment of the United States District Court for the Southern District of 

New York (Paul A. Engelmayer, Judge).

UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND 

DECREED that the judgment of the district court is VACATED, and the case is REMANDED 

for further proceedings consistent with this order.

Plaintiffs-Appellants appeal from an April 25, 2022, judgment of the United States District 

Court for the Southern District of New York (Paul A. Engelmayer, Judge) granting summary 

judgment for Defendant-Appellee Leonard M. Tannenbaum and denying Plaintiffs’ cross-motion 

for summary judgment. Plaintiffs, shareholders of Oaktree Specialty Lending Corporation 

(“OCSL”), seek to recover alleged short-swing profits obtained by Tannenbaum under section 

16(b) of the Securities Exchange Act of 1934 (the “Act”), 15 U.S.C. § 78p(b).

In October 2017, Tannenbaum sold management rights over two companies he founded to 

nonparty Oaktree Capital Management, L.P. (“Oaktree Capital”). The companies became OCSL 

and Oaktree Strategic Income Corporation (“OCSI”). Tannenbaum continued to be a shareholder 

in OCSL and OCSI. However, as a condition of sale, he entered into two identical voting 

agreements (the “Voting Agreements”) on July 13, 2017, which were publicly filed with the SEC. 

The Voting Agreements required Tannenbaum to vote his shares in OCSL and OCSI in accordance 

with Oaktree Capital’s written instructions. Yet, if Oaktree Capital declined to instruct 

Tannenbaum how to vote his shares, the Voting Agreements afforded Tannenbaum the ability to 

vote his shares freely. The Voting Agreements also prohibited Tannenbaum from proposing to 

influence or control the management or policies of OCSL and OCSI.
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On October 28, 2020, OCSL and OCSI entered into an agreement to merge OCSI into 

OCSL (the “Merger”). On October 29, 2020, OCSL and OCSI publicly announced the proposed 

Merger by, among other things, issuing a joint press release and hosting a public conference call 

for investors. As consideration for the proposed Merger, OCSI shareholders were offered OCSL 

shares in exchange for their OCSI shares. The joint press release (1) explained that the exchange 

ratio of OCSI shares to OCSL shares (“Exchange Ratio”) would be determined at the Merger’s 

closing and based on the ratio between the two companies’ net asset values (“NAVs”), and (2) 

gave an illustrative example of the prospective Exchange Ratio—then, 1.39 OCSL shares for each 

OCSI share—using each company’s June 30, 2020, NAVs. OCSL filed a Form 8-K on October 

29, 2020, which specified that “[a]s of a mutually agreed date no earlier than 48 hours . . . prior 

to” the Merger, “each of OCSI and OCSL will deliver to the other a calculation of its [NAV] as of 

such date.” Def. App’x. 288. In the joint press release and during the conference call, company

executives expressed their enthusiasm about the Merger.

Tannenbaum first learned of the proposed Merger through these public announcements. 

Sometime between October 30 and November 1, he called Mathew Pendo, the president and chief 

operating officer of both OCSL and OCSI. Tannenbaum testified at his deposition that, as a large 

shareholder in both OCSI and OCSL, he was “concerned and curious” and wanted to understand 

if he “was being hurt . . . [or] benefitted” by how the companies would calculate their NAVs before 

the Merger. Pl. App’x 363. During Pendo’s call with Tannenbaum (the “Pendo Call”), “Pendo 

pointed towards different parts of the public release documents to walk [Tannenbaum] through 

how the NAV was being calculated” and explained to Tannenbaum that the present NAV 

calculations were not final. Id. at 364. Tannenbaum testified that he and Pendo were “careful” to 

discuss only public information. Id. at 367. 
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On January 21, 2021, OCSL and OCSI filed with the SEC joint proxy materials regarding 

the proposed Merger. These materials contained three voting items for the OCSL shareholder 

meeting (collectively, the “OCSL Proposals”): (1) electing two new OCSL directors, (2) ratifying 

the appointment of an independent auditor, and (3) approving the issuance of OCSL common stock 

to be exchanged for OCSI shares in the proposed Merger (the “Merger Stock Issuance Proposal”). 

The OCSL board of directors unanimously recommended that OCSL’s stockholders vote in favor 

of each proposal. The joint proxy materials set forth one voting item for the OCSI shareholder 

meeting: voting in favor of the Merger (the “Merger Proposal”). The OCSI board of directors 

unanimously recommended that OCSI’s stockholders vote in favor of the Merger Proposal. 

For the proposed Merger to succeed, it was necessary that (1) a majority of votes cast by 

OCSL shareholders on the Merger Stock Issuance Proposal were in favor of the proposal and (2) 

a majority of all outstanding OCSI shares voted in favor of the Merger Proposal. The Joint Proxy 

Materials disclosed that, as of January 19, 2021, Tannenbaum and his affiliates owned 21.6% of 

OCSI common stock. On February 4, 2021, OCSL filed a Form 8-K with the SEC, which 

contained an earnings presentation that provided an updated illustrative example of the projected 

Exchange Ratio—by then, 1.37—based on OCSI’s and OCSL’s NAVs as of December 31, 2020. 

On February 8, 2021, Robyn Tannenbaum, Tannenbaum’s wife, emailed Pendo. Her email 

stated: “We have received [Tannenbaum’s] control numbers to vote his shares in the merger. Per 

our voting agreement, please let us know how you would like us to vote.” Pl. App’x at 425. That 

same day, Pendo1 responded: “Please vote in favor of all 3 proposals.” Id. at 426. Robyn 

1 The parties do not dispute that Pendo was able to give valid written instructions on behalf of Oaktree Capital 

under the Voting Agreements.
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Tannenbaum later, on Tannenbaum’s behalf, voted in favor of all four voting items at the OCSL 

and OCSI shareholder meetings.

On March 15, 2021, the proposed Merger cleared both OCSL’s and OCSI’s shareholder 

votes. If Tannenbaum had not voted his shares in favor of the Merger Proposal, it would have 

failed to garner a majority of OCSI’s outstanding shares, and the Merger would have failed. The 

Merger closed on March 19, 2021, with a final Exchange Ratio of 1.3371 OCSL shares per OCSI 

share. Whereas Tannenbaum beneficially owned 13% of OCSL’s shares before the Merger, he 

owned 14.9% of OCSL’s shares immediately after the Merger. As relevant here, within the 

statutory six-month window before and after the closing of the Merger, Tannenbaum sold 

4,704,822 OCSL shares, for an alleged profit of $1,076,049.86.

Plaintiffs claim that Tannenbaum, a statutory insider of both OCSL and OCSI, violated 

Section 16(b) of the Act by realizing short-swing profits when he (1) voted, based on advance 

inside knowledge, in favor of the Merger, causing his OCSI shares to be exchanged for OCSL 

shares, and (2) sold OCSL shares on the open market at a profit within six months of the Merger. 

To recover alleged short-swing profits under Section 16(b), Plaintiffs must prove “that there was 

(1) a purchase and (2) a sale of securities (3) by an officer or director of the issuer or by a 

shareholder who owns more than ten percent of any one class of the issuer’s securities (4) within 

a six-month period.” Gwozdzinsky v. Zell/Chilmark Fund, L.P., 156 F.3d 305, 308 (2d Cir. 1998). 

But there is a narrow exception to Section 16(b)’s broad scope. “In limited circumstances, we 

scrutinize ‘borderline’ or ‘unorthodox’ transactions ‘pragmatic[ally]’ to determine whether they 

serve as a ‘vehicle for the evil which Congress sought to prevent—the realization of short-swing 

profits based upon access to inside information.’” Huppe v. WPCS Int’l Inc., 670 F.3d 214, 218 

(2d Cir. 2012) (alteration in original) (quoting Kern Cnty. Land Co. v. Occidental Petroleum Corp., 
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411 U.S. 582, 593–94 & n.26 (1973)). We apply this unorthodox transaction exception only if (1) 

the transaction is an “involuntary transaction by an insider,” and (2) that insider “ha[d] no access 

to inside information.” Huppe, 670 F.3d at 218–19. The district court granted Tannenbaum’s 

motion for summary judgment because, in its view, there was no genuine dispute of material fact 

that Tannenbaum had satisfied both prongs of the unorthodox transaction exception.

We review the district court’s grant of summary judgment de novo. Kee v. City of New

York, 12 F.4th 150, 157 (2d Cir. 2021). “In doing so, we must construe the facts in the light most 

favorable to the non-moving party and must resolve all ambiguities and draw all reasonable 

inferences against the movant.” Id. at 158 (internal quotation marks omitted). “Summary 

judgment is appropriate only when ‘the movant shows that there is no genuine dispute as to any 

material fact and the movant is entitled to judgment as a matter of law.’” Id. (quoting Fed. R. Civ. 

P. 56(a)).

As to the first prong of the unorthodox transaction exception, we agree with the district 

court that Tannenbaum’s Merger-related acquisition of OCSL shares was involuntary. This is 

because, pursuant to the Voting Agreements, Oaktree Capital instructed Tannenbaum in writing 

to vote his OCSL and OCSI shares in favor of the Merger. Plaintiffs submit that Pendo’s February 

8 email directed Tannenbaum to vote in favor of “all 3 proposals”—the OCSL Proposals—and 

therefore Tannenbaum retained agency as to a fourth proposal—the OCSI Merger Proposal—

under the Voting Agreements. Plaintiffs further argue that, if there is any ambiguity about which 

proposals were meant by “all 3,” this ambiguity should be resolved by a jury. We disagree. No

reasonable factfinder could interpret Pendo’s email instruction in the way Plaintiffs suggest. It 

would be nonsensical for Oaktree Capital to instruct Tannenbaum, a significant shareholder in 

OCSL and OCSI, to vote in favor of one necessary component of the Merger (the OCSL Merger 
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Stock Issuance Proposal) but leave him free to vote against the other component (the OCSI Merger 

Proposal). Moreover, even if the Merger required separate affirmative votes from two sets of 

shareholders, OCSL and OCSI jointly pitched it as a single proposal. In line with this 

understanding, Robyn Tannenbaum’s February 8 email to Pendo, which asks how to “vote 

[Tannenbaum’s] shares in the merger,” does not distinguish between voting Tannenbaum’s OCSL 

shares and his OCSI shares.

We are also unpersuaded by Plaintiffs’ argument that Tannenbaum’s acquisition of OCSL 

shares was voluntary because he freely entered into the Voting Agreements and affirmatively 

asked (through his wife) for Pendo’s instruction. Tannenbaum entered into the Voting Agreements 

on July 13, 2017, which long preceded the six months before and after the Merger closed on March 

19, 2021, and there is no evidence that Tannenbaum could have foreseen the Merger upon entering 

into the Voting Agreements in 2017. Moreover, whether the instruction was initiated by Pendo or 

delivered after an inquiry is irrelevant: in either event, Pendo’s instruction contractually obligated 

Tannenbaum to vote his OCSL and OCSI shares in favor of the Merger. And we reject Plaintiffs’ 

argumentsthat (1) the fact that Tannenbaum’s vote was critical to the success of the Merger implies

that it was voluntary, and (2) Tannenbaum’s compliance with his contractual obligations under the 

Voting Agreements was voluntary because he could have breached these obligations.

As to the second prong of the unorthodox transaction exception, however, we are not 

satisfied that the evidence conclusively establishes that Tannenbaum had no access to inside 

information that he could have exploited in connection with the Merger. “[T]en percent holders 

can be presumed to have access to inside information because they can influence or control the 

issuer as a result of their equity ownership.” Huppe, 670 F.3d at 219 (internal quotation marks 

omitted). This presumption can be rebutted. If the insider has no “access to material information
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[such] that he might be able to exploit his advantage to the detriment of the general investing 

public,” his information “is by definition not significant . . . and therefore it could not afford an 

opportunity for speculative abuse” under the orthodox transaction framework. Heublein, Inc. v.

Gen. Cinema Corp., 559 F. Supp. 692, 704 (S.D.N.Y.), aff’d, 722 F.2d 29 (2d Cir. 1983). But 

rebuttal is difficult. Where there is “‘at least the possibility’ of speculative abuse of inside 

information,” section 16(b) “should be applied without further inquiry.” Huppe, 670 F.3d at 219

(quoting Blau v. Lamb, 363 F.2d 507, 519 (2d Cir. 1966)).

Here, Tannenbaum was undoubtedly a statutory insider because of his beneficial ownership 

of OCSL and OCSI stock at all relevant times. However, the district court concluded that 

Tannenbaum indisputably rebutted the presumption that he had access to material inside 

information. We disagree.

Tannenbaum defends the district court’s conclusion based on his deposition testimony

about the Pendo Call. He testified that “Pendo pointed towards different parts of the public release 

documents to walk [him] through how the NAV was being calculated,” Pl. App’x 364, and that he 

and Pendo were “careful” to discuss only public information, id. at 367. We find this testimony 

to be ambiguous. Although Tannenbaum asserted that only public information was discussed 

during the call, he also stated that Pendo walked him through “how the NAV was being 

calculated.” Tannenbaum’s testimony did not explain further what he meant by “how the NAV 

was being calculated,” and it could fairly be inferred from the present record that some aspects of 

the valuation methodology were nonpublic.

We are also not compelled by Tannenbaum’s argument that, even if he received nonpublic 

information about how the NAV was being calculated, this information was immaterial. Although

the public had access to the formula used to determine the Exchange Ratio and illustrative 
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examples of the Exchange Ratio calculation, the Exchange Ratio formula is different from the 

NAV calculation methodologies. The Exchange Ratio effectively set the price paid for OCSI 

shares in the Merger by dividing the OCSI NAV per share by the OCSL NAV per share. The 

NAV calculation methodologies pertain to the steps taken by the companies to arrive at the NAVs

before the Exchange Ratio is applied to them. Contrary to the district court’s finding, it is not 

dispositive of the materiality question that “what the stocks’ NAVs would be in the period 48 hours 

before the Merger . . . was inherently unknowable.” Donoghue v. Oaktree Specialty Lending

Corp., 600 F. Supp. 3d 463, 482 (S.D.N.Y. 2022). Knowledge of the methodologies used to 

calculate the NAVs could have enabled an investor to better predict what the companies’ NAVs 

would be at the time of the merger and, by extension, the exchange ratio. Therefore, nonpublic 

information about how these two NAV inputs were calculated could be material.

Finally, Tannenbaum points to the fact that the Voting Agreements prohibited him from 

“seek[ing] or propos[ing] to influence or control the management or policies of” OCSL and OCSI. 

Id. at 381, 408. Indeed, the Voting Agreements appear to have been designed to keep Tannenbaum 

from the type of inside information and control that statutory insiders are presumed to enjoy. 

However, the fact that Tannenbaum was able to have a private conversation with the CEO of OCSL 

and OCSI about how the NAV calculation would “hurt [or] benefit[] him” suggests that this 

contractual scheme did not entirely remove his insider status. Id. at 363.

For all of these reasons, we conclude that, given the vague nature of Tannenbaum’s 

testimony, a reasonable factfinder could discern from the fact of the Pendo Call and its content

that there was “at least the possibility of speculative abuse of inside information.” Huppe, 670 

F.3d at 219 (internal quotation marks omitted). Therefore, Tannenbaum did not indisputably carry 

his burden of showing that he had no access to material nonpublic information. As such, the 
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presumption that Tannenbaum was a statutory insider remained, and it was not Plaintiffs’ burden 

to demonstrate that he had such access. We are accordingly not persuaded by the district court’s 

holding that “the evidence adduced necessarily—and without any dispute of material fact” 

establishes the second prong of the unorthodox transaction exception. Donoghue, 600 F. Supp. 3d 

at 484.

It may be that additional evidence regarding the Pendo Call—including, potentially, further 

deposition of Tannenbaum—might conclusively show whether any material nonpublic 

information was discussed during the call. Therefore, we determine that the most efficient course 

of action is to remand for the district court to reopen discovery for this limited purpose, pursuant 

to the procedures adopted in United States v. Jacobson, 15 F.3d 19 (2d Cir. 1994). If, following

this procedure, the district court again concludes that granting summary judgment for Tannenbaum 

is appropriate, Plaintiffs may reinstate this appeal by submitting a letter to this Court so requesting 

no later than 30 days after the district court’s determination. The Clerk shall direct any such appeal 

to this panel. If, however, the district court concludes that summary judgment for Tannenbaum is 

not appropriate, the district court should conduct further proceedings in the ordinary course, with 

any future appeals governed by the usual rules. 

We therefore vacate the judgment and remand with instructions for the district court to 

reopen discovery for the limited purpose of determining (1) whether Pendo and Tannenbaum 

discussed the NAV calculation methodologies, (2) whether those methodologies were in fact 

nonpublic, and (3) how, if at all, such methodologies were immaterial.

* * *
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We have considered all of the parties’ remaining arguments and find in them no basis to 

disturb the conclusions above. Accordingly, we VACATE the judgment, and REMAND the case 

for further proceedings consistent with this order.

FOR THE COURT:

Catherine O’Hagan Wolfe, 

Clerk of Court