Colby v. Klune, Civ. 44-676.

• Decision Date: 25 January 1949
• Docket Number: Civ. 44-676.
• Citation: 83 F. Supp. 159
• Parties: COLBY v. KLUNE et al.
• Court: U.S. District Court — Southern District of New York

83 F. Supp. 159

COLBY v. KLUNE et al.

Civ. 44-676.

United States District Court S. D. New York.

January 25, 1949.

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

Dwight, Harris, Koegel & Caskey, of New York City (Caesar L. Pitassy, of New York City, of counsel), for defendants.

CONGER, District Judge.

These are cross-motions for summary judgment pursuant to Federal Rules Civil Procedure, rule 56, 28 U.S.C.A.

The plaintiff, a stockholder of the defendant corporation, has instituted suit in accordance with Section 16(b) of the Securities Exchange Act of 1934, 15 U.S.C.A. § 78p(b), for the recovery of profits realized by the defendant Klune from the purchases and sales of the common stock of the defendant corporation within periods of less than six months.

It appears that on September 27, 1944, the board of directors of the defendant corporation, pursuant to a plan adopted by the stockholders at a meeting held on May 16, 1944, granted options to certain executives of the company to purchase common stock of the corporation. The defendant Klune was authorized to purchase 2,500 shares. Klune exercised his option to the extent of 1,500 shares, which he sold at a profit.¹

Section 16(a) of the Act provides as follows: "Every person who is directly or indirectly the beneficial owner of more than 10 per centum of any class of any equity security (other than an exempted security) which is registered on a national securities exchange, or who is a director or an officer of the issuer of such security, shall file, at the time of the registration of such security or within ten days after he becomes such beneficial owner, director, or officer, a statement with the exchange (and a duplicate original thereof with the Commission) of the amount of all equity securities of such issuer of which he is the beneficial owner, and within ten days after the close of each calendar month thereafter, if there has been any change in such ownership during such month, shall file with the exchange a statement (and a duplicate original thereof with the Commission) indicating his ownership at the close of the calendar month and such changes in his ownership as have occurred during such calendar month." 15 U.S.C.A. § 78 p(a).

Section 16 (b) provides: "For the purpose of preventing the unfair use of information which may have been obtained by such beneficial owner, director, or officer by reason of his relationship to the issuer, any profit realized by him from any purchase and sale, or any sale and purchase, of any equity security of such issuer (other than an exempted security) within any period of less than six months, unless such security was acquired in good faith in connection with a debt previously contracted, shall inure to and be recoverable by the issuer, irrespective of any intention on the part of such beneficial owner, director or officer in entering into such transaction of holding the security purchased or of not repurchasing the security sold for a period exceeding six months. Suit to recover such profit may be instituted at law or in equity in any court of competent jurisdiction by the issuer, or by the owner of any security of the issuer in the name and in behalf of the issuer if the issuer shall fail or refuse to bring such suit within sixty days after request or shall fail diligently to prosecute the same thereafter; but no such suit shall be brought more than two years after the date such profit was realized. This subsection shall not be construed to cover any transaction where such beneficial owner was not such both at the time of the purchase and sale, or the sale and purchase, of the security involved, or any transaction or transactions which the Commission by rules and regulations may exempt as not comprehended within the purpose of this subsection." 15 U.S.C.A. § 78p (b).

It is conceded by all parties that Klune was not an owner of more than 10 per cent of any class of equity security, nor was he a director or officer of the defendant corporation.

Rule X-3B-2 of the General Rules and Regulations of the Securities and Exchange Commission under the Securities Exchange Act of 1934 provides: "The term `officer' means a president, vice president, treasurer, secretary, comptroller, and any other person who performs for an issuer, whether incorporated or unincorporated, functions corresponding to those performed by the foregoing officers."

It is this Rule upon which the plaintiff bases his cross-motion for summary judgment, contending that Klune performed the duties of an officer.

I take it that this argument involves a question of fact unless, of course, Klune's duties are clearly known and stated beyond dispute. The problem then resolves itself into one...