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Huppe v. WPCS International Inc.

United States Court of Appeals for the Second Circuit
670 F.3d 214 (2nd Cir. 2012)


Special Situations Fund III QP, L.P. (QP) (defendant) and Special Situations Private Equity Fund, L.P. (PE) (defendant) invested in publicly traded companies. QP and PE each owned over 10 percent of the shares of WPCS International Inc. (WPCS) (defendant). QP and PE entered into an agreement that allowed Austin Marxe and David Greenhouse to make all investment decisions on behalf of QP and PE. From December 2005 through January 2006, QP and PE sold WPCS shares on the open market. After WPCS made an announcement that caused WPCS’s share price to fall drastically, WPCS approached Marxe and Greenhouse about a possible transaction. On April 11, 2006, QP and PE bought 876,931 shares directly from WPCS for an amount that was 7 percent below market price. WPCS’s board of directors approved the sale. Maureen Huppe (plaintiff), a WPCS shareholder, filed a derivative action, arguing that QP and PE, as 10 percent shareholders, were liable to WPCS under § 16(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78p(b). The district court found in favor of Huppe, and QP and PE appealed.

Rule of Law


Holding and Reasoning (Parker, J.)

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