193 F.2d 461 (2nd Cir. 1952), 107, Birnbaum v. Newport Steel Corp.

Docket Nº:107, 22172.
Citation:193 F.2d 461
Party Name:BIRNBAUM et al. v. NEWPORT STEEL CORP. et al.
Case Date:January 10, 1952
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

Page 461

193 F.2d 461 (2nd Cir. 1952)




Nos. 107, 22172.

United States Court of Appeals, Second Circuit.

January 10, 1952

Argued Dec. 6, 1951.

Nathan B. Kogan, New York City, for plaintiffs-appellants; Irving Constant, New York City, counsel.

Cahill, Gordon, Zachry & Reindel, New York City, for defendant-appellee Newport Steel Corp.; Frederick P. Warne, New York City, counsel.

Milbank, Tweed, Hope & Hadley, New York City, for defendant-appellee Wilport Co.; A. Donald MacKinnon and Eugene H. Nickerson, New York City, counsel.

Page 462

Sullivan & Cromwell, New York City, for defendant-appellee, C. Russell Feldmann; Arthur H. Dean, Howard T. Milman and Henry N. Ess, III, New York City, counsel.

Before SWAN, Chief Judge, and L. HAND and AUGUSTUS N. HAND, Circuit judges.

AUGUSTUS N. HAND, Circuit Judge.

The appellants are stockholders of the Newport Steel Corporation who brought suit on behalf of that corporation and as the representatives of all similarly situated stockholders. The complaint alleges a violation of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C.A. § 78j(b), and Rule X-10B-5 of the Securities and Exchange Commission, 17 C.F.R. § 240.10b-5 (1949), in that use of the United States mails was resorted to by the several defendants in order to defraud the stockholders of Newport and the Corporation in the sale of certain stock owned by the defendant Feldmann to the defendant Wilport Company. The defendants, Newport Steel Corporation, Wilport Company, and C. Russell Feldmann, moved in the court below to dismiss the complaint for failure to state a cause of action. That court granted the motion and directed judgment accordingly. Jurisdiction of the district court was invoked solely under Section 27 of the Securities Exchange Act, 15 U.S.C.A. §§ 78aa.

The allegations of the complaint pertinent for mention may be summarized as follows: Prior to the sale in controversy, the Newport Steel Corporation manufactured steel which it sold to manufacturers of finished steel products. The defendant Feldmann owned approximately forty per cent of the common stock of Newport, which was sufficient for voting control, and was its president and chairman of its board of directors; the remaining stock of Newport was publicly held and scattered among thousands of small investors. The...

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