Blau v. Lamb

• Decision Date: 08 March 1963
• Docket Number: Docket 27238.,No. 251,251
• Parties: Isadore BLAU, a stockholder of Air-Way Industries, Inc., suing on behalf of himself and all other stockholders similarly situated and on behalf of and in the right of Air-Way Industries, Inc., Plaintiff-Appellant, v. Edward LAMB, Frank C. Oswald, Edward Lamb Enterprises, Inc., and Air-Way Industries, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

314 F.2d 618 (1963)

Isadore BLAU, a stockholder of Air-Way Industries, Inc., suing on behalf of himself and all other stockholders similarly situated and on behalf of and in the right of Air-Way Industries, Inc., Plaintiff-Appellant, v. Edward LAMB, Frank C. Oswald, Edward Lamb Enterprises, Inc., and Air-Way Industries, Inc., Defendants-Appellees.

No. 251, Docket 27238.

United States Court of Appeals Second Circuit.

Argued March 7, 1963.

Decided March 8, 1963.

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

Jerome M. Stember, of Stember & Dershowitz, New York City (J. Eugene Farber, Toledo, Ohio, on the brief for defendant-appellee Air-Way Industries, Inc.), for defendants-appellees.

Peter A. Dammann, Gen. Counsel, David Ferber, Associate Gen. Counsel, and John A. Dudley, Atty., Securities and Exchange Commission, Washington, D. C., for Securities and Exchange Commission amicus curiae.

Before CLARK, WATERMAN, and KAUFMAN, Circuit Judges.

CLARK, Circuit Judge.

The district court summarily dismissed the plaintiff's action to recover "short swing" profits under the Securities Exchange Act of 1934, § 16(b), 15 U.S.C. § 78p(b), for the benefit of Air-Way Industries, Inc., because it held him not to be the bona fide owner of securities of the corporation at the time the action was brought, and hence not the real party in interest. It was not disputed that some time before the action was instituted, the plaintiff had bought 100 shares on his margin account with a broker, that the broker asked for increase of margin of $470, which plaintiff paid, and that the broker then credited Blau as the owner in the statements issued monthly, and also credited him with a stock dividend paid by the corporation and with cash dividends as they were received. The stock remained in the broker's name, or in "street name" as it is called, until transferred to Blau before the trial on settlement of the account. During all this time the broker accepted Blau as owner, and it is not questioned that this he was legally obliged to do. The court, however, sought to determine the beneficial ownership of the stock and held unbelievable Blau's own testimony that he had cash funds adequate to pay the account, noting the lack of any bank accounts or signs of wealth beyond Blau's own statement. So it concluded that Blau was actually holding the stock as nominee for someone undisclosed, and hence was not the real party in interest.

We think the court took an unduly technical view of the requirement of ownership, thus defeating the remedial purposes of the statute which have been stressed ever since the leading case of Smolowe v. Delendo Corp., 2 Cir., 136 F. 2d 231, 148 A.L.R. 300, cert. denied Delendo Corp. v. Smolowe, 320 U.S. 751, 64 S.Ct. 56, 88 L.Ed. 446. It is well settled that, since recovery is for the corporation, it is the real party in interest and the stockholder plaintiff is but "the mere vehicle of recovery." Magida v. Continental Can Co., 2 Cir., 231 F.2d 843, 848, cert. denied Continental Can Co. v. Magida, 351 U.S. 972, 76 S.Ct. 1031, 100 L.Ed. 1490. The statute provides that suit to recover such profit may be brought "by the issuer, or by the owner of any security of the issuer in the name and in behalf of the issuer" if the latter fails to sue within 60 days after request (as it had here). Sec. 16(b) supra. This inclusive language...