Roth v. Fund of Funds, Ltd.

• Decision Date: 06 December 1968
• Docket Number: Docket 32250.,No. 27,27
• Citation: 405 F.2d 421
• Parties: Ethel ROTH, suing as a stockholder in the name and in behalf of Dreyfus Corporation, Plaintiff-Appellee, v. The FUND OF FUNDS, LTD., Defendant-Appellant, and Dreyfus Corporation, Defendant-Appellee, and I. O. S., Ltd. (S. A.) doing business as Investors Overseas Services, Defendant.
• Court: U.S. Court of Appeals — Second Circuit

405 F.2d 421 (1968)

Ethel ROTH, suing as a stockholder in the name and in behalf of Dreyfus Corporation, Plaintiff-Appellee, v. The FUND OF FUNDS, LTD., Defendant-Appellant, and Dreyfus Corporation, Defendant-Appellee, and I. O. S., Ltd. (S. A.) doing business as Investors Overseas Services, Defendant.

No. 27, Docket 32250.

United States Court of Appeals Second Circuit.

Argued September 20, 1968.

Decided December 6, 1968.

Certiorari Denied April 21, 1969.

Allan F. Conwill, New York City (Wilkie, Farr & Gallagher, and Vincent R. Fitzpatrick and Gilbert Sandler, New

York City, on the brief), for defendant-appellant.

Daniel A. Pollack, New York City (Pollack, Greenspoon & Singer, New York City), for plaintiff-appellee.

Before MOORE, FRIENDLY and FEINBERG, Circuit Judges.

Certiorari Denied April 21, 1969. See 89 S.Ct. 1469.

PER CURIAM:

Plaintiff Ethel Roth, a stockholder of Dreyfus Corporation (Dreyfus), brought a stockholder derivative suit to recover short-swing "insider" profits made by The Fund of Funds, Ltd. (Fund), a Canadian corporation, on purchases and sales of common stock of Dreyfus on the New York Stock Exchange. The District Court granted her motion for summary judgment and directed judgment in favor of Dreyfus and against the Fund in the sum of $154,019.50 together with interest and costs. The Fund appeals.

The Fund, a mutual investment company and admittedly the beneficial owner of more than 10% of Dreyfus stock, made a profit on purchase and sale transactions within a six-month period in violation of Section 16(b) of the Securities and Exchange Act of 1934 which provides that:

* * * any profit realized by the beneficial owner of more than 10% of the outstanding shares of the issuer from any purchase and sale * * * of any equity security of such issuer * * * within any period of less than six months * * * shall inure to and be recoverable by the issuer, irrespective of any intention on the part of such beneficial owner * *. 15 U.S.C. § 78p(b)

The Fund concedes, as it must, that it comes within this provision and that the net profit it received on such transactions would "inure to * * * the issuer." However, it seeks to bring itself within the exemption to this provision contained in Section 30(b) of the Act.

That section, entitled Foreign Securities Exchanges, provides:

The provisions of this chapter * * * shall not apply to any person insofar as he transacts a business in securities without the jurisdiction of the United States * * *. 15 U.S.C. § 78dd

The Fund contends that it comes within the literal words of the exemption because, as a mutual fund, it "transacts a business in securities" and, as its offices are in Geneva, Switzerland, it transacts this business "without the jurisdiction of the United States." However, Section 30(b) is inapplicable because when the Fund bought and sold the securities in question on the New York Stock Exchange, utilizing New York City stock brokers to execute its orders to buy and sell, and made payment for the purchases through a New York bank, it was not transacting a "business in securities without the jurisdiction of the United States." Kook v. Crang, 182...