Akin Secures Victory for Hudson Bay Capital Management Obtaining Dismissal of $310 Million Section 16(b) Lawsuit in the Southern District of New York

(New York) – Akin has secured a significant victory on behalf of HBC Investments LLC and Hudson Bay Capital Management LP (together, “Hudson Bay”) in the U.S. District Court for the Southern District of New York in the case, 20230930-DK-BUTTERFLY-1 Inc. v HBC Investments LLC.

The case involved a lawsuit brought against Hudson Bay under Section 16(b) of the Securities Exchange Act of 1934. The plaintiff, 20230930-DK-BUTTERFLY-1, INC., f/k/a Bed Bath & Beyond Inc. (“BBBY”) claimed that Hudson Bay was a Section 16 insider of BBBY as a greater-than-10% beneficial owner of BBBY stock, notwithstanding provisions in the relevant securities contracts prohibiting Hudson Bay from beneficially owning more than 9.99% of BBBY’s outstanding stock (the “Blockers”).  Plaintiff further alleged that Hudson Bay was required to disgorge more than $300 million in profits allegedly earned on purchases and sales of BBBY securities within a six-month period.

BBBY asserted that Hudson Bay was a greater-than-10% beneficial owner of BBBY, despite Blockers in the relevant contracts that prevented Hudson Bay from beneficially owning more than 9.99% of BBBY stock.  BBBY claimed that the Blockers were illusory under a kitchen-sink of theories, including, among others: (1) because the Blockers could have been amended; (2) because Plaintiff asserted that Hudson Bay “retained” residual voting and investment power over those shares for a brief period of time; and (3) Hudson Bay retained the ability to sell shares it had already sold until after the shares settled in Hudson Bay’s account. 

On July 11, 2024, Hudson Bay filed a motion to dismiss, arguing that the Blockers prevented Hudson Bay from beneficially owning more than 9.99% of BBBY’s stock. The Blockers contained self-executing provisions providing that any attempt to convert or exercise that would result in Hudson Bay beneficially owning more than 9.99% was “null and void,” “treated as if never made,” and “cancelled ab initio.” Hudson Bay also pointed out that BBBY’s allegation that Hudson Bay exceeded 10% beneficial ownership was nonsensical because whenever Hudson Bay sold BBBY shares, Hudson Bay simultaneously surrendered all beneficial ownership over those shares.   

On September 30, 2025, Judge Mary Kay Vyskocil issued her decision to dismiss BBBY’s complaint with prejudice.  The Court agreed with Akin that Hudson Bay could not be held liable as an insider under Section 16(b) because the Blockers prevented Hudson Bay from beneficially owning more than 9.99% of BBBY securities. Specifically, the Court found that: (1) BBBY did not allege that the Blockers were illusory or a sham, since the Blockers denied investors the right to acquire more than 9.99% of the underlying securities, were not easily waivable, and included self-enforcing mechanisms; and (2) BBBY could not plausibly allege that Hudson Bay exceeded 10% beneficial ownership during the relevant period because once Hudson Bay sold its shares to a third party buyer, Hudson Bay lost any ability to affect voting or investment power and such shares could not counted towards Hudson Bay’s beneficial ownership.   

“The claims made by the plaintiff were contradicted by the unambiguous terms of the controlling documents and established Second Circuit law,” said Douglas Rappaport, investment funds litigation head at Akin. “We are pleased with the Court’s carefully considered opinion recognizing that these claims were legally baseless, leading to a dismissal of the litigation against Hudson Bay Capital Management.”

The Akin team was led by funds litigation partners Douglas Rappaport and Kate Shapiro, and investment management partners William Wetmore and Jason Daniel. Additional support was provided by litigation counsel Rick D’Amato, Michael Chen, and Andrew McWhorter, as well as associates Maddelena DeSimone and Rebecca Kanner.  

Akin is a leading international law firm with more than 900 lawyers in offices throughout the United States, Europe, Asia and the Middle East. 

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