Source: https://www.chanrobles.com/usa/us_supremecourt/368/403/case.php
Timestamp: 2020-05-28 06:36:41
Document Index: 187178838

Matched Legal Cases: ['§ 16', '§ 16', '§ 16', '§ 16', '§ 16', '§ 16', '§ 16', '§ 16', '§ 16', '§ 16', '§ 16']

The petitioner Blau, a stockholder in Tide Water Associated Oil Company, brought this action in a United States District Court on behalf of the company under § 16(b) [Footnote 1] of the Securities Exchange Act of 1934 to chanrobles.com-red
The case was tried before a district judge without a jury. The evidence showed that Lehman Brothers had in chanrobles.com-red
First, there was testimony that respondent Thomas had succeeded Hertz, another Lehman partner, on the board of Tide Water; that Hertz had "joined Tidewater Company thinking it was going to be in the interests of Lehman Brothers"; and that he had suggested Thomas as his successor partly because it was in the interest of Lehman. There was also testimony, however, that Thomas, aside from having mentioned from time to time to some of his partners and other people that he thought Tide Water was "an attractive investment" and under "good" management, had never discussed the operating details of Tide Water affairs with any member of Lehman Brothers; [Footnote 2] that Lehman had bought the Tide Water securities without consulting Thomas, and wholly on the basis of public announcements by Tide Water that common shareholders could thereafter convert their shares to a new cumulative preferred issue; that Thomas did not know of Lehman's intent to buy Tide Water stock until after the initial purchases had been made; that, upon learning about the purchases, he immediately notified Lehman that he must be excluded from "any risk of the purchase or any profit or loss from the subsequent sale"; and that this disclaimer was accepted by the firm. [Footnote 3] chanrobles.com-red
173 F.Supp. 590, 593. Despite its recognition that Thomas had specifically waived his share of the Tide Water transaction profits, the trial court nevertheless held that, within the meaning of § 16(b), Thomas had "realized" $3,893.41, his proportionate share of the profits of Lehman Brothers. The court consequently entered judgment against Thomas for that amount, but refused to allow interest against him. chanrobles.com-red
Petitioner apparently seeks to have us decide the questions presented as though he had proven the allegations of his complaint that Lehman Brothers actually deputized Thomas to represent its interests as a director of Tide Water, and that it was his advice and counsel based on his special and inside knowledge of Tide Water's affairs that caused Lehman Brothers to buy and sell Tide Water's stock. But the trial court found otherwise, and the Court of Appeals affirmed these findings. Inferences could perhaps chanrobles.com-red
(c) Both the petitioner and the Commission contend on policy grounds that the Lehman partnership should be held liable even though it is neither a director, officer, nor chanrobles.com-red
Failure to do so, it is argued, will leave a large and unintended loophole in the statute -- one "substantially eliminating the great Wall Street trading firms from the statute's operation." 286 F.2d 799. These firms, it is claimed, will be able to evade the Act and take advantage of the "inside" information available to their members as insiders of countless corporations merely by trading "inside" information among the various partners.
The argument of petitioner and the Commission seems to go so far as to suggest that § 16(b)'s forfeiture of profits should be extended to include all persons realizing "short-swing" profits who either act on the basis of "inside" information or have the possibility of "inside" information. One may agree that petitioner and the Commission present persuasive policy arguments that the Act should be broadened in this way to prevent "the unfair use of information" more effectively than can be accomplished by leaving the Act so as to require forfeiture of profits only by those specifically designated by Congress to suffer those losses. [Footnote 11] But this very broadening of the categories of persons on whom these liabilities are imposed by the chanrobles.com-red
Not only did Congress refuse to give § 16(b) the content we are now urged to put into it by interpretation, but, with knowledge that in 1952 the Second Circuit Court of Appeals refused, in the Rattner case, to apply § 16(b) to Lehman Brothers in circumstances substantially like chanrobles.com-red
Second. The petitioner and the Commission contend that Thomas should be required individually to pay to Tide Water the entire $98,686.77 profit Lehman Brothers realized on the ground that, under partnership law, he is co-owner of the entire undivided amount, and has therefore "realized" it all. "[O]nly by holding the partner director liable for the entire short-swing profits realized by his firm," it is urged, can "an effective prophylactic to the stated statutory policy . . . be fully enforced." But chanrobles.com-red
In the two courts below, it was contended both that Thomas, because of his disclaimer of all participation in these partnership transactions, had realized no profits at all, and also that, even if he did realize some profits, the amount was less than that found. See the opinion of Judge Swan dissenting in part below. 286 F.2d 793. We express no view on these questions, since the Thomas judgment is not challenged here.
What the Court does today is substantially to eliminate "the great Wall Street trading firms" from the operation of § 16(b), as Judge Clark stated in his dissent in the Court of Appeals. 286 F.2d 786, 799. This result follows because of the wide dispersion of partners of investment banking firms among our major corporations. Lehman Bros. has partners on 100 boards. Under today's chanrobles.com-red
If a partnership can be a "director" within the meaning of § 16(a), then "any profit realized by him," as those words are used in § 16(b), includes all the profits, not merely a portion of them, which the partnership realized on the "inside information." There is no basis in reason for saying a partnership cannot be a "director" for purposes of the Act. In Rattner v. Lehman, 193 F.2d 564, 567, [Footnote 2/1] Judge Learned Hand said he was "not prepared to say" that a partnership could not be considered a "director," adding "for some purposes, the common law does treat a firm as a jural person." In his view, a partnership might be a "director" within the meaning of § 16 if it "deputed a partner" to represent its interests. Yet formal designation is no more significant than informal approval. Everyone knows that the investment banking-corporation alliances are consciously constructed so as to increase the profits of the bankers. In partnership law, a debate has long raged over whether a partnership is an chanrobles.com-red
It is said that the failure of Congress to take action to remedy the consequences of the Rattner case somehow or other shows a purpose on the part of Congress to infuse § 16 with the meaning that Rattner gave it. We took that course in Toolson v. New York Yankees, 346 U. S. 356, and adhered to a ruling the Court made in 1922 that baseball was not within the scope of the antitrust laws, because the business had been "left for thirty years to develop, on the understanding that it was not subject to" those laws. Id., p. 346 U. S. 357. Even then we had qualms, and two Justices dissented. For what we said in Girouard v. United States, 328 U. S. 61, 328 U. S. 69, represents our usual attitude: "It is at best treacherous to find in congressional silence alone the adoption of a controlling rule of law." [Footnote 2/4] chanrobles.com-red
What we do today allows all but one partner to share in the feast which the one places on the partnership table. They, in turn, can offer feasts to him in the 99 other companies of which they are directors. [Footnote 2/5] 14 Stan.L.Rev. 192, 198. This result is a dilution of the fiduciary principle that Congress wrote into § 16 of the Act. It is, with all respect, a dilution that is possible only by a strained reading of the law. Until now, the courts have given this fiduciary principle a cordial reception. We should not leave to Congress the task of restoring the edifice that it erected and that we tear down. chanrobles.com-red
The proper approach to the problem of interlocking directorates through the agency of an investment banking house was expressed by Judge Fahy in Lehman v. Civil Aeronautics Board, 93 U.S.App.D.C. 81, 209 F.2d 289, a case involving this same firm. See 368 U. S.
"93 U.S.App.D.C. at 85-87, 209 F.2d 292-294."