Opinion ID: 264439
Heading Depth: 1
Heading Rank: 1

Heading: The Computations in the District Court.

Text: 8 In analyzing the transactions in dispute, the District Court isolated two deals, or pairings of purchases and sales. Thus, as a first pairing, the Court linked Lachner's March 13, 1959 purchase of 10,000 shares, at the option price of $3.44375, with the sale of 4,600 shares on March 6, 1959, at $8.625. Taking the option price as the purchase price, the Court computed a per share profit of $5.18125; when this figure was multiplied by 4,600, an aggregate total of $23,833.75 was fixed; and this amount was considered Lachner's short-swing profit on this transaction. Thus: 9 (Sale) March 6, 1959 ..................... $8.625 (Purchase) March 13, 1959 .................... $3.44375 ________ Per share profit .............................. $5.18125 × 4,600 shares ____________ Total profit .................................. $23,833.75 10 Even Babbitt has conceded that the Court erred in taking the option price of $3.44375 as the purchase price for the purpose of computing Lachner's profits. Under Judge Medina's familiar analysis in Steinberg v. Sharpe, 95 F. Supp. 32 (S.D.N.Y.1950), aff'd on the opinion below, 190 F.2d 82 (2d Cir. 1951), this approach is unduly harsh; while § 16(b) was designed to squeeze out only short-term profits, the District Court's computation would, in effect, penalize Lachner for the increment in the value of Babbitt's stock over the long period from December 16, 1957, when the option was granted by the employment agreement, until March 13, 1959, when it was finally exercised. Instead, the Steinberg formula would require in the present case that the purchase price of stock bought pursuant to an option be considered as equivalent to the fair market value of the stock on the date on which the option was first exercisable. In the present case, this date was December 4, 1958. And since Babbitt common sold on December 4 for $9.3125, the pairing of this purchase with a sale at $8.625 obviously results in no recoverable profits. 11 As a second combination, the District Court paired Lachner's conversion of preferred into common — on November 5, 1958 — with his sale of 5,749 shares on May 6, 1959. This pairing is clearly improper. Since the interval between the purchase and the sale exceeded six months — if only by one day — any profit which Lachner may have made on the transaction is not recoverable under § 16 (b).