In an opinion last week, Judge Engelmayer denied defendant’s motion for summary judgment regarding the “unorthodox transaction” exception to Section 16(b) of the Securities Exchange Act. Previously, the Second Circuit had vacated and remanded Judge Engelmayer’s earlier decision, which had granted summary judgment, on the grounds that the defendant had not “carried his burden” to show that there was no genuine dispute that he “did not have access to inside information.”

In line with the Second Circuit’s mandate, the Court reopened discovery on this limited factual issue. Ultimately, the only evidence on the relevant issue was testimonial. The plaintiffs allege that the defendant received inside information during a phone call, but the two participants to the call say they only discussed public information. Reviewing the evidence on remand, Judge Engelmayer held that the defendant still had not carried his burden to “indisputably” prove his affirmative defense.

As an initial matter, Judge Engelmayer pointed out that there is no consensus from appellate courts on the moving party’s burden at summary judgment when the moving party has the burden of proof on the merits of the issue:

The courts of appeals have not settled on one precise locution to define a movant’s burden in this respect. Compare [Leone v. Owsley, 810 F.3d 1149, 1154 (10th Cir. 2015)] (evidence “must be so powerful that no reasonable jury would be free to disbelieve it”), with Harnishfeger v. United States, 943 F.3d 1105, 1116 (7th Cir. 2019) (evidence must be “so one-sided as to rule out the prospect of a finding in favor of the nonmovant”), with Lemaster v. Lawrence County, 65 F.4th 302,310 (6th Cir. 2023) (evidence must be “of such weight that no rational jury could disagree with it”), with Guzman v. Allstate Assurance Co., 18 F.4th 157, 160 (5th Cir. 2021) (evidence must “establish” all essential elements “beyond peradventure”), with In re Buscone, 61 F.4th 10, 28 (1st Cir. 2023) (evidence must be “conclusive”).

Determining that the movant’s evidence must be at least “substantial” to warrant summary judgment, Judge Engelmayer turned to the consideration of testimonial evidence:

When the critical evidence adduced by a summary judgment movant is testimonial, as here, an additional complication is present. As Learned Hand famously observed, “the carriage, behavior, bearing, manner and appearance of a witness—in short, his ‘demeanor’—is a part of the evidence” at trial, and it is “abundantly settled” that a jury should “take into consideration the whole nexus of sense impressions which they get from a witness” in determining whether to credit (or discredit) his testimony. Thus, notwithstanding that a witness has testified to a fact, a jury might not credit that testimony.

All of the evidence on the record concerning the defendant’s knowledge of insider information supported the defendant’s motion. However, because the evidence was testimonial and subject to credibility disputes, Judge Engelmayer held that a jury could reasonably consider such evidence unreliable, and therefore the case should proceed to trial.