Truncale v. Blumberg
| Decision Date | 31 January 1950 |
| Citation | 88 F. Supp. 677 |
| Parties | TRUNCALE v. BLUMBERG et al. |
| Court | U.S. District Court — Southern District of New York |
Millard & Greene, New York City, for plaintiff. Milton Pollack, New York City, of counsel.
H. G. Pickering, New York City, Mudge, Stern, Williams & Tucker, New York City, for defendant Clifford Work. John Wallis and Robert E. Walsh, New York City, of counsel.
Phillips, Nizer, Benjamin & Krim, New York City (Louis Nizer and Daniel Glass, New York City, of counsel), for defendant William A. Scully.
Adolph Schimel, New York City (C. S. Landau, New York City, of counsel), for defendant Universal Pictures Co., Inc.
In the following discussion I shall assume familiarity with the decisions of Judge Medina in Truncale v. Blumberg, D.C.S.D. N.Y. 1948, 80 F.Supp. 387, and D.C., 8 F.R.D. 492. See also Truncale v. Blumberg, D.C.S.D.N.Y. 1948, 83 F.Supp. 628. These narrate the background facts against which the specific issues are herein decided.
The action was brought by a stockholder suing under § 16(b) of the Securities Exchange Act of 1934, 15 U.S.C.A. § 78p(b), in behalf of Universal Pictures Co., Inc., to recover shortswing profits realized by defendants from dealings in the corporation's securities.
On motion of plaintiff Judge Medina granted summary judgment and made an order as follows:
The trial so ordered was had and developed no serious issues of fact. It crystallized an issue of law relating to the measure of damages. The facts relevant to that issue may be summarized thus: On March 4, 1941, each of the defendants Work and Scully entered into employment contracts with a corporation to serve in important executive capacities for a period of years. Simultaneously, the parent of the corporation agreed, in consideration of defendants' making the employment contracts, to issue to each of them, after each year of such employment, warrants entitling the holder to purchase 3,000 shares of stock of the parent corporation at $10 a share. Parent and subsidiary were subsequently merged and became Universal Pictures, Company, Inc., the beneficiary corporation named in this action. On December 12, 1945, each of these defendants received from that corporation, pursuant to the contract, warrants for 3,000 shares of its stock. Within six months preceding the date of receipt, each of the defendants had sold warrants for at least 3,000 shares. The total price received by Work was $73,053.90. The total price received by Scully was $47,635.
It is plaintiff's contention that the total price received was the profit realized and is, therefore, the measure of the damages recoverable against each defendant. It argues that profit is the excess of selling price over cost and that here cost was zero. It supports its view by calling attention to the fact that in their income tax returns each of these defendants, in reporting their capital gains, treated these warrants as having been acquired at no cost.1
Plaintiff's contention, superficially, seems to be supported by the language of the statute. The results it produces in this case are, however, so bizarre as to compel closer scrutiny. If plaintiff is right, it follows that throughout the term of employment defendants can never sell any warrants for their own benefit. Since the warrants were issued in annual installments, any sale by them, no matter when effected during the term of employment, would be within six months of the last previous receipt or of the next succeeding one. The whole of the sale price would be forfeited to the corporation. The contract here involved did not prohibit sales of the warrants by the defendants during the term of employment. This is, of course, irrelevant to the construction of the statute; but it does reveal its impact when damages are measured in accordance with the plaintiff's theory.
Warrants of the kind here under consideration become...
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