173 F.Supp. 590 (S.D.N.Y. 1959), Blau v. Lehman

Citation173 F.Supp. 590
Party NameIsadore BLAU, a stockholder of Tide Water Associated Oil Company, suing on behalf of himself and all other stockholders similarly situated and on behalf of and in the right of Tide Water Associated Oil Company, Plaintiff, v. Robert LEHMAN et al., a co-partnership, doing business under the firm name and style of Lehman Brothers, Joseph A. Thomas and
Case DateMay 22, 1959
CourtUnited States District Courts, 2nd Circuit, Southern District of New York

Page 590

173 F.Supp. 590 (S.D.N.Y. 1959)

Isadore BLAU, a stockholder of Tide Water Associated Oil Company, suing on behalf of himself and all other stockholders similarly situated and on behalf of and in the right of Tide Water Associated Oil Company, Plaintiff,

v.

Robert LEHMAN et al., a co-partnership, doing business under the firm name and style of Lehman Brothers, Joseph A. Thomas and Tide Water Associated Oil Company, Defendants.

United States District Court, S.D. New York

May 22, 1959

Page 591

Morris J. Levy, New York City, for plaintiff.

Simpson, Thacher & Bartlett, New York City, for defendants Lehman Bros. and Joseph A. Thomas, Cyrus R. Vance, Robert S. Carlson, New York City, of counsel.

Leve, Hecht, Hadfield & McAlpin, New York City, for defendant Tide Water Associated Oil Co.

DAWSON, District Judge.

This is an action based upon § 16(b) of the Securities Exchange Act of 1934, 15 U.S.C.A. § 78p(b), 1 in which plaintiff, a

Page 592

shareholder of defendant Tide Water Associated Oil Company (hereinafter called 'Tide Water'), seeks an accounting by defendants other than Tide Water of certain profits realized from alleged purchases and sales of securities within a period of less than six months.

This action was tried by the Court without a jury and the following are the findings of fact of the Court:

At all material times the securities of defendant Tide Water were registered on the New York Stock Exchange. Defendant Joseph A. Thomas was, at the time of the transactions here involved, a director of Tide Water and also a member of a partnership doing business as Lehman Brothers. In 1954 under the partnership agreement Thomas was entitled to receive 4% of the first 47.05% of the profits and 1.85% of the remaining 52.95% of the profits. In 1955 he was entitled to receive 4% of the first 44.05% of the profits, plus 1.85% of the remaining 55.95%.

In 1954, at the age of 76, defendant John Hertz, then a partner of Lehman Brothers, resigned his directorship of Tide Water. After resigning he spoke with Mr. Staples, President of Tide Water, and recommended defendant Thomas as a prospective director of Tide Water. Hertz then asked Thomas whether he would like to become a director of Tide Water and Thomas said that he would. Mr. Thomas was then introduced to Mr. Staples at the home of John Schiff, a friend of Mr. Thomas and a partner of Kuhn, Loeb & Company. Staples and Thomas then met several times, culminating in Staples asking Thomas if he would like to be a director. The invitation to join the Tide Water Board was upon the initiative of Tide Water. Thomas accepted the directorship because of his interest in the oil business and because of the prestige factor in serving on the Board of a large corporation.

Between October 8, 1954 and November 15, 1954, the partnership, Lehman Brothers, purchased in the regular course of its business 50,000 shares of Tide Water common stock at an aggregate cost of $1,330,800. The purchase of these shares by Lehman Brothers was made at the direction of the partners constituting the investment committee of the firm, of which Thomas was not a member, and he was not consulted by his partners as to the proposed plan of recapitalization of Tide Water, or with reference to any of the affairs of Tide Water, except to say to them that he believed it was a good company under good management. The Court finds as a fact that the stock of Tide Water was bought and sold by Lehman Brothers without any advice or concurrence of Thomas, or without his knowledge until after the transactions had taken place.

Pursuant to a plan of recapitalization, Lehman Brothers exchanged its 50,000 shares of common stock on December 8, 1954 for 50,000 shares of a new preferred stock issued by Tide Water. Between December 9, 1954 and March 8, 1955, Lehman Brothers sold its 50,000 shares of preferred stock realizing in the aggregate the sum of $1,361,186.77. Lehman Brothers' purchases of Tide Water common stock were made upon the basis of two articles published in the Wall Street Journal. The first of these articles appeared on September 17, 1954. In it Tide Water announced that it was considering a proposal to allow shareholders to exchange common stock for a new dividend-paying preferred stock. On October 8,

Page 593

1954 a second article appeared in the Wall Street Journal which announced that the Tide Water board of directors had approved a plan of recapitalization under which it proposed to create an issue of $1.20 dividend cumulative preferred stock and under which plan all holders of its common stock could exchange their common stock on a share-for-share basis for the new dividend-paying cumulative preferred stock.

Beginning on October 8, 1954, after the plan of recapitalization had been approved by the Tide Water board and had become public information, Lehman Brothers, planning to convert Tide Water common into Tide Water preferred, and acting solely on the basis of Tide Water's public announcements and without consulting Thomas with reference thereto, purchased the 50,000 shares of Tide Water common stock which were exchanged for an equal number of shares of the newly issued preferred stock on December 8, 1954. By March 9, 1955 Lehman Brothers had sold all the preferred stock.

Joseph A. Thomas, who had served as a director of Tide Water since August 5, 1954, from the outset completely revealed the firm's transactions just described by filing monthly statements with the Securities and Exchange Commission for October, November and December, 1954 and January, February and March, 1955.

When Thomas learned that his firm had purchased shares of stock in Tide Water, of which he was then a director, he orally indicated to his partners that he wished to be disassociated with the transaction and that he waived his interest in it. According to his testimony he made this statement at a meeting of partners and his partners acquiesced. Later, when the transaction was completed by the sale of the Tide Water stock, a statement was prepared by the Comptroller of the firm showing the profits made by Lehman Brothers on the transaction, but no share of the profits was shown as attributable to Thomas and what otherwise would have been his share of the profits was allocated to the other members of the firm.

Plaintiff, a stockholder of Tide Water, through his attorney, sent a letter on June 29, 1955, pursuant to §...

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8 practice notes
  • 286 F.2d 786 (2nd Cir. 1961), 51, Blau v. Lehman
    • United States
    • Federal Cases United States Courts of Appeals United States Court of Appeals (2nd Circuit)
    • December 20, 1961
    ...profits was also matter of dispute between the parties. Plaintiff and Thomas have filed cross-appeals. The opinion below is reported in 173 F.Supp. 590. On August 5, 1954 Thomas, then a partner of Lehman Brothers, became a director of Tide Water. Although he succeeded John Hertz, also a par......
  • 352 F.2d 156 (3rd Cir. 1965), 14809, Heli-Coil Corp. v. Webster
    • United States
    • Federal Cases United States Courts of Appeals United States Court of Appeals (3rd Circuit)
    • October 1, 1965
    ...latter within the meaning of Section 16(b) has been accepted as the general rule. Blau v. Lehman, 286 F.2d 786 (2 Cir. 1960), affirming 173 F.Supp. 590 (D.C.S.D.N.Y.1959), affirmed 368 U.S. 403, 82 S.Ct. 451, 7 L.Ed.2d 403 (1962); B. T. Babbitt, Inc. v. Lachner, 332 F.2d 255 (2 Cir. 1964). ......
  • 406 F.2d 260 (2nd Cir. 1969), 33, Feder v. Martin Marietta Corp.
    • United States
    • Federal Cases United States Courts of Appeals United States Court of Appeals (2nd Circuit)
    • January 14, 1969
    ...Court in Blau v. Lehman, 368 U.S. 403, 408-410, 82 S.Ct. 451, 7 L.Ed.2d 403 (1962), affirming 286 F.2d 786 (2 Cir. 1960), affirming 173 F.Supp. 590 (S.D.N.Y. 1959) more firmly established the possibility of an entity, such as a partnership or a corporation, incurring Section 16(b) liability......
  • 239 F.Supp. 962 (S.D.N.Y. 1965), Marquette Cement Mfg. Co. v. Andreas
    • United States
    • Federal Cases United States District Courts 2nd Circuit United States District Courts. 2nd Circuit. Southern District of New York
    • April 7, 1965
    ...a short-swing transaction from which the corporation has also benefited, is insufficient to show an actual deputization. Blau v. Lehman, 173 F.Supp. 590 (S.D.N.Y.1959). There has not been sufficient evidence produced to show that Andreas was the deputy of the corporation on the Marquette Bo......
  • Request a trial to view additional results
8 cases
  • 286 F.2d 786 (2nd Cir. 1961), 51, Blau v. Lehman
    • United States
    • Federal Cases United States Courts of Appeals United States Court of Appeals (2nd Circuit)
    • December 20, 1961
    ...profits was also matter of dispute between the parties. Plaintiff and Thomas have filed cross-appeals. The opinion below is reported in 173 F.Supp. 590. On August 5, 1954 Thomas, then a partner of Lehman Brothers, became a director of Tide Water. Although he succeeded John Hertz, also a par......
  • 352 F.2d 156 (3rd Cir. 1965), 14809, Heli-Coil Corp. v. Webster
    • United States
    • Federal Cases United States Courts of Appeals United States Court of Appeals (3rd Circuit)
    • October 1, 1965
    ...latter within the meaning of Section 16(b) has been accepted as the general rule. Blau v. Lehman, 286 F.2d 786 (2 Cir. 1960), affirming 173 F.Supp. 590 (D.C.S.D.N.Y.1959), affirmed 368 U.S. 403, 82 S.Ct. 451, 7 L.Ed.2d 403 (1962); B. T. Babbitt, Inc. v. Lachner, 332 F.2d 255 (2 Cir. 1964). ......
  • 406 F.2d 260 (2nd Cir. 1969), 33, Feder v. Martin Marietta Corp.
    • United States
    • Federal Cases United States Courts of Appeals United States Court of Appeals (2nd Circuit)
    • January 14, 1969
    ...Court in Blau v. Lehman, 368 U.S. 403, 408-410, 82 S.Ct. 451, 7 L.Ed.2d 403 (1962), affirming 286 F.2d 786 (2 Cir. 1960), affirming 173 F.Supp. 590 (S.D.N.Y. 1959) more firmly established the possibility of an entity, such as a partnership or a corporation, incurring Section 16(b) liability......
  • 239 F.Supp. 962 (S.D.N.Y. 1965), Marquette Cement Mfg. Co. v. Andreas
    • United States
    • Federal Cases United States District Courts 2nd Circuit United States District Courts. 2nd Circuit. Southern District of New York
    • April 7, 1965
    ...a short-swing transaction from which the corporation has also benefited, is insufficient to show an actual deputization. Blau v. Lehman, 173 F.Supp. 590 (S.D.N.Y.1959). There has not been sufficient evidence produced to show that Andreas was the deputy of the corporation on the Marquette Bo......
  • Request a trial to view additional results