Document: 368 U.S. 403 82 S.Ct. 451 7 L.Ed.2d Isadore BLAU, etc., Petitioner,v.Robert LEHMAN et al. No. 66. Argued Dec. 12 and 13, 1961. Decided Jan. 22, 1962. Morris J. Levy, New York City, for the petitioner. Allan F. Conwill, Washington, D.C., Securities Exchange Commission, as amicus curiae, by special leave of Court. Whitney North Seymour, respondents. Mr. Justice BLACK delivered opinion 1 The petitioner Blau, a stockholder in Tide Water Associated Oil Company, brought this action United States District Court on behalf company under § 16(b)1 Act 1934 to recover with interest 'short swing' profits, that is, profits earned within six months' period purchase sale securities, alleged have been 'realized' respondents securities dealings. Respondents are Lehman Brothers, partnership engaged investment banking, brokerage trading its own account, Joseph A. Thomas, member Brothers director Water. complaint 'deputed * represent interests Board Directors,' months 1954 1955 while representing 'by reason his inside knowledge affairs Water, advised caused defendants, sell 50,000 shares stock realizing thereon which did not inure (were) recovered Water.' 2 case was tried before district judge without jury. evidence showed had fact out short-swing transactions Thomas company. But charges deputization wrongful use 'inside' information conflict. 3 First, there testimony respondent succeeded Hertz, another partner, board Water; Hertz 'joined Tidewater Company thinking it going be Brothers'; he suggested successor partly because Lehman. There also testimony, however, aside from having mentioned time some partners other people thought 'an attractive investment' 'good' management, never discussed operating details any Brothers;2 bought consulting wholly basis public announcements common shareholders could thereafter convert their new cumulative preferred issue; know Lehman's intent buy until after initial purchases made; upon learning about immediately notified must excluded 'any risk or profit loss subsequent sale'; disclaimer accepted firm.3 4 From foregoing found 'there no firm deputed Water' actual information, 'solely Water's Thomas.' 5 On these findings refused render judgment, either against individually, $98,686.77 determined realized,4 holding: 6 'The law is now well settled mere partner at short swing transaction sufficient make liable thereon, held realized firm's transactions. Rattner v. Lehman, Cir., 1952, 193 F.2d 564, 565, 567. This precise question passed decision.' 173 F.Supp. 590, 593. Despite recognition specifically waived share trial court nevertheless meaning 16(b) $3,893.41, proportionate Brothers. consequently entered judgment amount but allow him. appeal, taken both sides, Appeals Second Circuit adhered view affirmed Court's all respects, Judge Clark dissenting. 286 786. Commission then sought en banc file an curiae petition rehearing urging overruling case. Commission's motion denied, Judges Smith We granted certiorari filed himself, stockholders supported Commission. 366 902, 81 1048, 202. questions presented whether courts below erred: (1) refusing they were 'short-swing' stock, (2) full (3) $3,893.41 recovery allowed Thomas.5 8 Petitioner apparently seeks us decide though proven allegations actually deputized advice counsel based stock. otherwise findings. Inferences perhaps drawn support petitioner's charges, examination record makes clear two clearly erroneous. Moreover, we cannot agree courts' determinations disputed factual issues wee conclusions rather than fact. therefore absolute liability pay over made dealings even sitting initiative, independently given Thomas. 9 First. language 16 does purport impose extraordinary 'person,' 'fiduciary' not, unless 'director,' 'officer' 'beneficial owner more 10 per centum class equity security registered national exchange.'6 neither officer nor 10% contend should treated 16(b). (a) Although admittedly 'literally designated' one, contended director. No doubt partnership, purposes 'director' function through deputy, since 3(a)(9) Act7 provides "person' means partnership' 3(a)(7)8 "director' direct corporation person performing similar functions respect organization, incorporated unincorporated.' Consequently, would if charged functioned who perform director's duties himself below, accepted, preclude such holding. It entity, 11 (b) next argued defining 'person' including treat inseparable entity.9 Because one 'insider,'10 whole considered 'insider.' obvious 3(a)(9), realizes, merely can entity statute, be. affords construing word read 'partnership member.' And Congress provided 3(a) (9) right likewise offers argument wanted subject responsibilities financial burdens members carrying individual business activities. (c) Both policy grounds director, officer, stockholder. Conceding interpretation justified literal plainly limits directors, officers, stockholders, expand cover partnerships order carry congressionally declared purpose 'of preventing unfair may obtained beneficial owner, relationship issuer *.' Failure do so, argued, will large unintended loophole statute—one 'substantially eliminating great Wall Street firms statute's operation.' F.2d, 799. These claimed able evade take advantage available insiders countless corporations among various partners. 13 seems go so far suggest 16(b)'s forfeiture extended include persons act possibility information. One present persuasive arguments broadened way prevent 'the information' effectively accomplished leaving require only those designated suffer losses.11 very broadening categories whom liabilities imposed rejected when Act. Drafts provisions eventually became unlawful disclose confidential regarding received anyone, 'insider' 'to disclosure' recoverable company.12 14 Not refuse give content urged put into interpretation, 1952 refused, case, apply circumstances substantially like here, has left was.13 shows intervened last year Indeed relied part Rule X—16A—3(b) required insider-partners report holdings partnership. While changed rule disclosure too, official release explaining change stated 'not intended modification principles governing Section set forth *'14 might amend us, think proper agency unbroken passage, made. 15 Second. individually entire ground co-owner undivided all. '(O)nly holding partner-director firm,' urged, effective prophylactic statutory fully enforced.' general adding 'prophylactic' effect itself prescribed That section leaves room judicial him' (Emphasis added.) nothing fiction say member. error hold make. Third. erred failing Thomas' profits. says other. said kindred situation 'interest according rigid theory compensation money withheld, response considerations fairness. denied exaction inequitable.' Commissioners Jackson County, Kansas States, 308 343, 352, 60 285, 289, 84 L.Ed. 313. here denial inequitable upset it. 17 Affirmed. 18 STEWART took disposition 19 DOUGLAS, THE CHIEF JUSTICE concurs, 20 What today eliminate firms' operation 16(b), dissent Appeals. 786, result follows wide dispersion banking our major corporations. Bros. 100 boards. Under today's ruling rich harvest 'inside covers each need account distributive information', keeping balance. mutilation 21 If 16(a), him,' words used includes portion them, information.' saying In 567,1 Learned Hand prepared say' 'director', 'for jural person.' partner' interests. Yet formal designation significant informal approval. Everyone knows banking-corporation alliances consciously constructed increase bankers. debate long raged aggregate. Pursuit will-o'-the-wisp profitable. For aggregate recognizes purposes.2 easier opposite. 16(a) speaks every 'director.' defined include, inter alia, 'a partnership.'3 Thus, turn strained reading section. 22 At root problem scope degree arising fiduciary relations. modern times strictly construed. Appeals, speaking Chief Cardozo Meinhard Salmon, 249 N.Y. 458, 164 N.E. 545, 62 A.L.R. 1, joint adventurer higher standard insist today: 23 'Many forms conduct permissible workaday world acting arm's length, forbidden bound ties. A trustee something stricter morals market place. honesty alone, punctilio honor most sensitive, behavior. As developed tradition unbending inveterate. Uncompromising rigidity attitude petitioned undermine loyalty 'disintegrating erosion' particular exceptions (Wendt Fischer, 243 439, 444, 154 303). Only thus level fiduciaries kept trodden crowd. lowered court.' N.Y., 464, N.E., 546. 24 Mosser Darrow, 341 267, 71 680, 95 927, reorganization surcharged $43,447.46 employees subsidiaries bankrupt 'no hint proof corrupt interest, future, permitted make.' Id., 275, 684. said: 25 'These strict prohibitions serve little free authorize others what forbidden. charge open up opportunities devious name own. motives man too complex separate trustees motive acquiring efficient help favoring help, anticipation counterfavors later come. authorize, benefit himself. 26 '* limit difficult delicate fact-finding tasks concerning precluding often trace, prohibition injuring estate—it profiting position trust. occurred, concerned, undenied.' 271 273, 682. 27 failure remedy consequences somehow infuse gave course Toolson Yankees, 346 356, 74 78, 98 64, 1922 baseball antitrust laws, 'left thirty years develop, understanding to' laws. p. 357, 78. Even qualms Justices dissented. Girouard 328 61, 69, 66 826, 830, 90 1084, represents usual attitude: 'It best treacherous find congressional silence alone adoption controlling law.'4 ironic principle sanction, vested, practice notoriously unethical 28 forget much history narrow construction. Brandeis Other People's Money spoke office happy hunting ground' He goose lays golden eggs valuable possession. profitable privilege taking laid somebody else's goose. bankers associates enjoy privilege.' 12. 29 hearings led replete episodes showing how exploited personal gain came them aset asset Senate Report labeled practices 'predatory operations.' S.Rep.No. 1455, 73d Cong., 2d Sess., 68. 30 'Among vicious unearthed subcommittee flagrant betrayal directors officers positions trust positions, aid Closely allied type abuse unscrupulous employment who, exercised control destinies companies enable acquire others.' 55. See 792, 9. 31 embodied espoused. Sam Rayburn follows: 'Men administration people's advantage.' H.R.Rep. 1383, Sess. 13. 32 allows feast places table. They offer feasts him 99 directors.5 Stan.L.Rev. 192, 198. dilution wrote respect, possible law. Until now, cordial reception. task restoring edifice erected tear down. 33 Appendix Opinion DOUGLAS. 34 Civil Aeronautics Board, supra, 93 U.S.App.D.C., 85—87, 209 292—294. 35 'Petitioner Pan American; National Airlines, Inc., American Export Lines, Inc.; Frederick L. Ehrman Continental Air John D. Consolidated Vultee Aircraft Corporation. All referred aeronautic field approval kind interlocking relationships approved. Messrs. Ehrman, others, which, previously pointed out, conducts business. 36 409(a) representative exist disapproved involving National; Lines; Vultee; Lines Vultee. 37 'More precisely concluded air carrier 'who director' latter, coupled underwriting merger negotiation services negotiations constitute substantial employed infrequently companies. feel solicit firm. 38 consider facts light keep developing aviation industry unhealthy relationships, carried statute provides. relevant point dispute. activities business; fees negotiations. Profits shared companies, types services, seek doing representatives fellow partners, carriers. Is representation statute? Does illustrative, represent, American? affirmative answer disturbed. comes community sharing benefits regulated matters. link extend remote aeronautical directors; carriers enumerated 409(a). enterprises directors. When again illustrate, guide company's acts carrier, American. same personalities, were, if, regard undoubted grows directorships concern statute.' 'For issuer, sale, purchase, (other exempted security) less months, acquired good faith connection debt contracted, shall irrespective intention entering purchased repurchasing sold exceeding months. Suit instituted competent jurisdiction fail bring suit sixty days request diligently prosecute thereafter; date realized. subsection construed where involved, rules regulations exempt comprehended subsection.' 48 Stat. 896, U.S.C. 78p(b), U.S.C.A. 78p(b). 1956, question, participated bonds. handled during matter compliance thereunder, see note 14, infra, SEC reports defendants were. Since determination complained necessary pass contentions. participation transactions, all, that, realize found. Swan dissenting below. 793. express challenged here. 78p(a), 78p(a). 883, 78c(a)(9), 78c(a)(9). 78c(a)(7), 78c(a)(7). brief says: 'Therefore, holds directorship consent firm, entirely reasonable 16(b).' An Cook Feldman, Insider Trading Act, Harv.L.Rev. 385, 399—404. U.S.App.D.C. 81, cited comparable situations throw Those cases involved different statutes, statutes themselves language, 15(b) H.R. 7852, S. 2693, provided: '(b) owning and/or beneficially exchange. To disclose, directly indirectly, affecting disclosed corporate duties. Any person, made, believe performance *' ascribed provision, Hearings Committee Banking Currency S.Res. 84, 72d Nos. 56 97, 1st 6555, 6558, 6560—6561; Interstate Foreign Commerce 7852 8720, 135—137. seem indicate provision omitted final anticipated problems administration. Smolowe Delendo Corp., 136 231, 236; 564. Seventeenth Annual (1952); Eighteenth Report, 79 (1953). submitted Congress. Release 4754 (September 24, 1952), X—16A—3 amended March 9, 1961, delete requirements issuer's substance still contained instructions Forms making 16(a). decision rendered pursuant regulatory power, reporting requirement X—16A—3. After read: 'A 240.16a—1 owned may, elects, extent transactions.' CFR, 1961 Cum.Supp., 240.16a—3(b). Loss, Regulation, Vol. 2, pp. 1102—1104 (1961). Matter Schwartzman, 262 App.Div. 635, 636—637, N.Y.S.2d 882, 884, aff'd 288 568, 42 N.E.2d legal Unemployment Insurance Law; Mendelsohn Equitable Life Assurance Soc., 178 Misc. 152, 154, 733, 735, 'attorneys person' Rules Practice; Travelers Indemnity Co. Unger, Misc.2d 955, 959, 158 892, 'is regarded pleading.' Bernard Ratner, City Ct., 717. & P Trucking Co., 358 121, 203, 165—a severe impact I urge criminally Motor Carrier Act—the said, 'Congress included definition number Acts, entities.' 124, 3, 206. Toucey Ins. 314 118, 140—141, 139, 147, 86 100: indulging merest doctrine first asked pronounce eyes consideration, obviously firmly texture enacted silence. occasion commanding unmistakably spoken words. failed requested ordinarily expected act. 265 comprehensive legislative ree xamination. referable legislation incidental features schemes, Removal Interpleader Acts. explicit 1793 intact. significance Congressional nonaction none.' approach directorates house expressed Fahy opinion.

Category: 7