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In Re BISYS Group Inc. Derivative Action
Citations: 396 F. Supp. 2d 463; 2005 U.S. Dist. LEXIS 25902; 2005 WL 2847424Docket: 04 CIV. 4600(LAK)
Court: District Court, S.D. New York; October 31, 2005; Federal District Court
The United States District Court for the Southern District of New York, in the case of In re BISYS Group Inc. Derivative Action, addressed a consolidated derivative complaint filed on behalf of BISYS Group, Inc. Plaintiffs alleged violations of Section 304 of the Sarbanes-Oxley Act of 2002 and various state law claims following BISYS's financial restatement for fiscal years 2001 through 2004. The defendants sought dismissal of the complaint. The court determined that the only basis for federal jurisdiction was the Sarbanes-Oxley claim, as other claims relied on supplemental jurisdiction, which would be lost if the federal claim was dismissed. Section 304 mandates reimbursement of certain compensation by top executives if a company must restate its financials due to misconduct. However, the court found that Section 304 does not create a private right of action for the issuer, as indicated by legislative history suggesting enforcement should be solely by the Securities and Exchange Commission (SEC). The court contrasted this with Section 306, which explicitly allows a private cause of action for insider trading profits. Citing the precedent set in Neer v. Pelino, the court concluded that there is no private right of action under Section 304, thus stating the Sarbanes-Oxley claim failed to state a claim for relief. Consequently, there was no subject matter jurisdiction over the state law claims, leading to the granting of the motion to dismiss the consolidated derivative complaint on the merits regarding the Sarbanes-Oxley claim and for lack of jurisdiction over the remaining claims. The dismissal was ordered by the court, affirming that the issue of creating a private right of action remains solely within Congress's purview.