Opinion ID: 793867
Heading Depth: 2
Heading Rank: 1

Heading: The Transactions and the Present Action

Text: 3 Prior to January 28, 2000, defendants owned certain businesses (Murphy Farms) that they agreed to sell to Smithfield pursuant to an Acquisition Agreement and Plan of Reorganization (Acquisition Agreement or Agreement), in exchange for which they would receive shares of Smithfield common stock. That transaction closed on January 28, 2000. The Acquisition Agreement provided that the number of Smithfield shares to be received by defendants would bear a fixed relation to the financial condition of the Murphy Farms businesses, which would be determined by an accounting to be made in accordance with financial criteria that were specified in the Agreement. The district court noted that the total purchase price for Murphy Farms would be determined by that accounting, and defendants would be paid that price in shares of Smithfield common stock based on the January 28, 2000 closing price of that stock. ( See Acquisition Agreement § 2.4.) 4 Pursuant to the Agreement, on January 28, 2000, defendants transferred their interests in Murphy Farms to Smithfield and received 10,054,396 shares of Smithfield common stock; and an additional 1,000,000 shares were issued to them but were placed in escrow. Depending on the results of the accounting, defendants thereafter (a) would receive some or all of the 1,000,000 shares held in escrow, or (b) would receive the 1,000,000 escrowed shares plus additional shares (earn-out shares), or (c) would receive none of the escrowed shares and would be required to return some of the 10,054,396 shares they had received on January 28, 2000 (claw-back shares). ( See id. § 2.4(d).) 5 In July 2001, following completion of the initial stages of the accounting, Smithfield not only relinquished its claim to the 1,000,000 shares placed in escrow (which were thereupon transferred to the defendants), but also issued to the defendants 223,436 earn-out shares. 322 F.Supp.2d at 481. [B]etween September 25, 2001 and November 7, 2001 — i.e., fewer than six months after the July 2001 transfer of the escrow shares and issuance of the first group of earn-out shares — the defendants sold 1,960,150 shares of Smithfield stock at a substantial profit. Id. Between March 14, 2003, and June 6, 2003, defendants sold an additional 129,100 shares of Smithfield stock. Thereafter, as a result of still further steps in the accounting, another 129,100 earn-out shares were issued to the defendants on July 22, 2003, id., that is, less than six months after defendants' second sale. 6 DiLorenzo, a Smithfield shareholder, brought the present derivative action alleging that defendants' relevant purchases of Smithfield stock for purposes of § 16(b) occurred (1) upon the release of the escrow shares and the Company's agreement to issue 223,436 earn-out shares in July 2001, and (2) upon the Company's agreement to issue another 129,100 earn-out shares in July 2003. ( See, e.g., Complaint ¶¶ 15, 28, 29.) With those events viewed as purchases, DiLorenzo contended that defendants' sales of Smithfield stock resulted in short-swing profits within the meaning of § 16(b), totaling at least $32,071,591 that DiLorenzo argued should be disgorged to Smithfield. 7 The individual defendants moved to dismiss the complaint for failure to state a claim on which relief can be granted or, in the alternative, for summary judgment. Smithfield, after reviewing DiLorenzo's complaint, joined defendants' motion to dismiss for failure to state a claim.