Success for Dole Food Company in Securities Litigation

In-depth court decision delves into short-swing profits

A lawsuit filed by a shareholder of Dole Food Company, Inc. over the sale of Dole stock by its Chairman and CEO, David H. Murdock, abruptly ended when plaintiff agreed to dismiss the lawsuit with prejudice. The end came as a result of Dole’s recent merger — in which Mr. Murdock acquired the approximately 60.5 percent of the Company’s outstanding common stock that he and his affiliates did not already own — which divested plaintiff of standing to proceed with the lawsuit.
The dismissal leaves intact a ruling by Judge Paul A. Engelmayer of the U.S. District Court for the Southern District of New York to dismiss the complaint against Dole and Mr. Murdock, which alleged that Murdock violated § 16(b) of the 1934 Securities Exchange Act by realizing short-swing profits when he purchased Dole shares within a six-month window of the settlement date of a Forward Purchase Agreement (FPA) he had entered into about three years prior. In connection with the FPA, Murdock delivered shares of Dole and received almost $228 million. Separate from that transaction — but within six months of its settlement date — Murdock made other purchases of Dole stock, and earned profits of about $3.4 million.
Section 16(b) prohibits certain corporate insiders from using non-public information to speculate in the stock of corporations where they owe fiduciary duties, and requires disgorging any profits earned from “matching” purchases and sales within a six-month period. There is no need to allege or prove actual use of insider information — it is a strict liability provision.
The central question in this case was whether settlement of the FPA counted as a “purchase” or as a “sale” of Dole stock. If it was a “sale,” then some portion of it would improperly “match” the purchases he made within the preceding six-months. As the Court bottom-lined it, if the acquisition of the FPA is the relevant sale date (in 2009), then Murdock is not liable. But if the settlement of the FPA is the relevant sale date (in 2012), then Murdock is liable.
The Court concluded that acquisition date represented the sale — on “the day he enters the agreement, the die is cast — alea iacta est.” (Click here to read a copy of the Court's order.)
Donoghue was represented by David Lopez of the Law Office of David Lopez and by James A. Hunter of Hunter & Kmiec.  Murdock was represented by Peter M. Stone and James B. Worthington of Paul Hastings. Dole was represented by Garland A. Kelley of Glaser Weil.

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