Klein v. Cadian Capital Management, LP, No. 17-3218 (2d Cir. 2018)Annotate this Case
Plaintiff brought a derivative action as a shareholder of Qlik, alleging that the Cadian Group owned more than ten percent of Qlik and engaged in short-term swing transactions in violation of Section 16(b) of the Securities Exchange Act. While the action was stayed, Qlik was bought out, causing plaintiff to lose any financial interest in the litigation. The Cadian Group subsequently moved to dismiss the action for lack of standing. The district court found that plaintiff's lack of standing deprived it of jurisdiction and that Qlik could not be substituted under Federal Rule of Civil Procedure 17.
The Second Circuit reversed, holding that, when plaintiff lost her personal stake in the litigation, the only jurisdictional question was whether the case had become moot. The court held that a district court has jurisdiction to determine whether substituting a plaintiff would avoid mooting the action, and that Rule 17(a)(3) allows substitution of the real party in interest so long as doing so does not change the substance of the action and does not reflect bad faith from the plaintiffs or unfairness to the defendants. In this case, the district court should have substituted Qlik and denied Cadian Group's motion to dismiss for lack of jurisdiction.