*1 BLAU v. LEHMAN et al. Argued January 66. 12-13,
No. December 1961. Decided 1962. *2 for Levy argued the cause and filed briefs Morris J. petitioner. respond- for
Whitney Seymour argued North the cause Company. than Oil ents other Tide Water Associated and Benjamin him the- Milner briefs were C. With Robert S. Carlson. Conwill, argued by special Court, F. leave of
Allan Exchange Commission, for and cause the Securities curiae, With him on the briefs urging amicus reversal. Cox, Davis, F. P. General John Walter were Solicitor North, Englander David Ferber. Ellwood L. and Bromley Society a American
Bruce filed brief for the curiae, Secretaries, urging Corporate Inc., of as amicus affirmance.
Mr. Court. opinion delivered the Black Justice in petitioner Blau, a Tide Water Asso- stockholder in a Company, brought ciated this action United Oil company District Court on behalf of under States (b)1 Exchange the Securities Act of 1934 to § 16 preventing “For the the unfair use of information by may owner, director, been obtained such or which have beneficial by any relationship issuer, profit officer reason of his to the realized any sale, any any purchase purchase, him from and or sale and equity security security) (other exempted issuer such than an any period security months, within of less than six unless such acquired good previously faith connection with a debt con- is, profits swing” profits, that recover with interest “short by period purchase a six months’ earned within alleged have been “realized” securities, sale respondents dealings. Respond- Tide Water securities engaged Brothers, ents are Lehman brokerage and secu- banking, investment securities trading Joseph A. account, rities its own Thomas, a member of Lehman Brothers and director The complaint alleged Tide Water. that Lehman . . “deputed Thomas, represent Brothers . its interests as a on the of Directors,” director Tide Water Board that within a six months in period of 1954 and 1955 *3 Thomas, while of representing the interests Lehman as a Brothers director of and “by Tide Water reason of his special knowledge and inside Water, affairs of Tide and defendants, Brothers, advised caused the Lehman purchase 50,000 and sell shares of . . of . stock Tide Water, realizing profits thereon which did not inure to and not recovered by Tide Water.” [were] The case was judge tried before a district without jury. The evidence showed that Lehman Brothers had tracted, by shall issuer, irrespective inure to and be recoverable the any intention on the owner, director, such beneficial or officer entering into such holding security purchased transaction of the repurchasing security period exceeding or of not the sold for a six profit may months. Suit to recover such be instituted at law or in equity any competent jurisdiction by court of issuer, by the or any security owner of of the issuer in the name and in behalf issuer bring sixty if issuer shall or fail refuse to such suit within days request diligently prosecute after or shall fail the same there- after; brought years but no such suit shall be more than two after profit the date such was realized. This subsection shall not be con- any strued to cover transaction where such beneficial owner was not purchase sale, pur- such both at the time of the or the sale and security any chase, of the involved, or or transaction transactions by regulations may exempt which the Commission rules and as not comprehended within the of this subsection.” 48 Stat. (b). 78p S. C. U. in Tide short-swing transactions out of earned fact that com- a director of while Thomas was securities Water wrong- charges deputization as to the pany. But Brothers, Lehman information of “inside” ful use in conflict. evidence was Thomas had testimony respondent was that
First, there on partner, another Lehman the board Hertz, succeeded Company that had Water; “joined Tide Hertz Tidewater of Lehman thinking going it be the interests was as his suc- suggested had Thomas Brothers”; and that he Lehman. it was the interest of partly cessor because Thomas, however, that aside testimony, There was also of his mentioned from time to time to some having from thought partners people and other that he Tide Water manage- under “good” “an investment” and attractive operating had never discussed details Tide ment, any Brothers;2 member of Water affairs with bought that Lehman had the Tide securities with- Water consulting wholly public out Thomas the basis announcements Tide Water common shareholders their shares to a new cumulative could thereafter convert preferred did not know of issue; Thomas Lehman's to buy pur- intent Tide Water stock until after the initial *4 learning upon pur- chases had been that about the made; immediately chases he notified Lehman that he must be “any purchase any excluded from risk of the or or profit subsequent loss from the sale”; and that this disclaimer was accepted by the firm.3
2 purchase question, In after the and sale Lehman Brothers participated underwriting in the of some Tide bonds. Water Thomas during this for Lehman handled the course of the matter dis cussed Tide Water affairs with the other members of Lehman. (a) compliance thereunder, In with and the rules and forms § 14, infra, reports see note filed Thomas with the SEC the Leh in Tide man transactions Water stock and his disclaimer of those transactions. the District testimony and other foregoing
From the firm of no evidence that the Court found that "there was inter- represent Thomas to its deputed Lehman Brothers of Tide and that there as director on the board Water” ests information, Lehman had been no actual use of inside having bought “solely Brothers its Tide Water stock with- public of Tide announcements and the basis Water’s consulting out Thomas.” findings
On the basis these the District Court refused or judgment, against partnership to render either the for against individually, $98,686.77 profits Thomas realized,4 which it determined Lehman Brothers had holding:
“The fact law is now well settled that the mere partner Lehman Brothers was a director time Water, Tide at the that Lehman Brothers had swing short Tide transaction the stock of Water, is not sufficient to make liable for profits thereon, and that Thomas could profits be held liable for the realized the other partners from swing the firm’s short transactions. Rattner Lehman, v. Cir., 564, 565, F. 2d precise question 567. This passed upon in the Rattner decision.” Supp. 173 F. 590, 593. its
Despite recognition specifically that Thomas had waived his share the Tide profits, Water transaction the trial court meaning nevertheless held that within (b) of 16 Thomas had “realized” $3,893.41, propor- profits tionate share of Lehman Brothers. The consequently against court entered judgment Thomas that amount but refused to allow against interest him.
[4] In both courts below defendants claimed that Lehman’s they been found to should have be much less than were. Since the *5 complained determination below here, has not been it is not neces sary pass on those contentions. sides, Appeals for appeal, taken both the Court
On in to the view it had taken the Second Circuit adhered Lehman, F. the v. 2d and affirmed Rattner respects, Judge all Clark judgment in District Court’s Exchange 2d The Securities and dissenting. 286 F. 786. sought Appeals from the Court of Commission then leave petition rehearing an amicus curiae en banc to file the Rattner case. Commis urging overruling of dissent denied, Judges motion was Clark and Smith sion’s petition Blau, certiorari on the filed ing. granted We and Tide himself, Water, other stockholders on behalf Commission. 366 902. The supported U. S. questions presented by petition are whether the courts (1) refusing judgment against below erred: to render a profits they partnership $98,686.77 the Lehman for the “short-swing” from their were found to have “realized” stock, to render (2) refusing transactions Tide Water against $98,686.77 profits, Thomas for the full judgment refusing on the (3) $3,893.41 allow interest recovery against Thomas.5 allowed apparently ques-
Petitioner seeks to us decide the have though proven allegations he had presented tions actually his complaint depu- Brothers represent Thomas to its interests as a director of tized it Tide and that was his advice and Water, counsel based special and inside knowledge of Tide affairs Water’s buy that caused Lehman Brothers to and sell Tide Water’s stock. But trial court found otherwise the Court Appeals findings. affirmed these per- Inferences could Thomas, In the two courts below it was contended both that participation because of his of all disclaimer in these transactions, profits all, that, had realized no at and also even if he did realize some the amount was than that found. See the less opinion Judge dissenting 286 F. 2d, Swan below. at 793. express We questions judgment no view on these since the Thomas challenged here.
409 from haps support peti- have been drawn the evidence to charges, tioner’s but examination of the record makes it findings clear to that the of the two courts us below were not clearly Moreover, agree erroneous. we cannot with that of Commission the courts’ determinations the dis- puted factual issues were law conclusions of rather than of fact. must findings We therefore decide whether Leh- liability man Thomas an Brothers, or both have absolute under (b) pay profits § 16 over all made on Lehman’s dealings though Tide Water stock even Thomas not on sitting represent Tide board to Lehman and Water’s though even made on were its own initiative, independently any advice or “inside” knowledge given byit director Thomas.
First. The not language purport impose § 16 does extraordinary any its liability “person,” “fiduciary” not, or unless he or it is a “officer” “director,” or “benefi- cial than 10 percentum any any owner more class security registered . . . which is equity on a national 6 exchange.” securities Lehman neither Brothers was an nor Water, petitioner officer stockholder of Tide but 10% and the Lehman partner- Commission contend that ship is or should be treated as a director under 16 (b). §
(a) admittedly “literally designated” as Although one, it is contended that Lehman is a No director. doubt though Lehman Brothers, partnership, pur- could poses 16 be a §of “director” Tide Water and function through a since 3 deputy, (a)(9) provides of the Act7 § “ 'person’ . . partnership” means . (a) (7)8 3§ “ any corporation any 'director’ means director of a or person performing respect any similar functions with organization, incorporated whether or unincorporated.” 6 (a), 896, 78p (a). See 16 48 Stat. C. U. S. § (a) (9). Stat. U. S. C. 78c§ (a) (7). 48 Stat. 15 U. S. C. 78c§
r-H © a director would be Lehman Brothers Consequently, complaint charged if Water, petitioner’s Tide who Thomas, through aas director actually functioned *7 a director’s perform Lehman to by deputized had been findings But the not for himself but for Lehman. duties pre- accepted, which we have below, of the two courts Thomas, It was not holding. such a clude the director of Tide Water. entity, Brothers as an that was (a) (9) 3 that the intent of (b) argued § It is next is to treat a including partnership as a defining “person” entity.9 inseparable as an Because partnership Thomas, 10 entity, “insider,” is an inseparable one member of partnership it is the whole should be contended the obvious intent considered the “insider.” But realizes, is §3(a)(9), apparently the Commission as merely partnership to make it clear that a can be treated entity as an under the must be. This statute, that.it no at all construing affords reason the word “director” (b) 16 it though “partnership § read of which the Congress pro- director member.” And the fact that (a) (9) partnership in 3 for a as an § vided to be treated entity right its own likewise no support offers for the argument partnership wanted a to be subject responsibilities to all the and financial burdens of its members in carrying on their other individual business activities.
(c) petitioner Both the Commission contend on policy grounds that the Lehman partnership should be though held liable even is neither a nor director, it officer, says: 9 The “Therefore, Commission’s brief when a member of a partnership directorship knowledge holds a with the and consent of firm, entirely his it is reasonable to consider the as the purposes (b).” 'director’ for the of Section 16 purposes An officer, “insider” for of 16 an director or § 10% Feldman, Trading stockholder. See Cook and Insider Under Exchange Act, Securities L. Harv. Rev. 399-404. an Conceding interpreta- that such stockholder. 10% justified by language tion is not (b) § the literal plainly liability directors, officers, which limits 10% stockholders, argued expand (b) it is that we should partnerships to cover a director is a which member carry congressionally order to out the declared “of preventing may the unfair use of information have which owner, director, been obtained such beneficial or officer issuer_” relationship reason of to the Failure to argued, large loop- it is will leave a so, do. unintended eliminating hole the statute —one “substantially great from trading opera- Wall Street firms the statute’s 2d, tion.” 286 F. at it is 799. These firms claimed will advantage be able evade the Act and take *8 “inside” information to their members as available corporations by insiders countless merely trading among “inside” information partners. the various argument petitioner and the Commission seems go to suggest (b)’s so far as to that profits 16 forfeiture of § persons should be extended to all realizing include “short swing” profits who either act basis “inside” infor- the possibility mation or have of “inside” information. may agree petitioner One pre- and the Commission sent persuasive policy arguments that the Act should be way in this prevent broadened to “the unfair infor- use effectively mation” more accomplished than can be by leaving the Act so require by as to forfeiture of profits only specifically designated by Congress those to suffer .those very broadening losses.11 But this categories persons imposed by on whom these liabilities are
11 Darrow, 267, v. Mosser 341 U. S. and Lehman v. Aeronautics Civil Board, App. 81, by 289, 93 S. D. C. 2d cited U. 209 F. the Commission any light comparable if as situations throw little on the in this issues statutes, case. Those cases involved different facts and different have language, statutes which themselves different his tory here. from the statute
412 by (b) rejected §of 16 considered
language provisions it the Act. Drafts of Congress passed when only eventually (b) not would have § became director, stock- any made it unlawful for officer or 10% any regarding to disclose confidential information holder all registered securities, but would have made also anyone, not, “insider” or such received “to whom made recoverable unlawful disclosure” had been company.12 (b) give refuse to the content only §
Not did by interpretation, into urged put we are now to it but with knowledge that in 1952 the Second Circuit Court of the Rattner (b) Appeals refused, case, apply § substantially like Brothers circumstances (b) Thus, Cong., 2d of both R. and S. 73d H. provided: Sess.
“(b) any director, officer, It shall or owner of be unlawful for per securities, owning beneficially more than 5 as of record and/or any any issuer, security centum of class of of which is stock of registered disclose, exchange (3) To on a national securities ... directly any indirectly, regarding or or confidential information affect- ing any registered security necessary proper such not or to be disclosed corporate Any by any person, profit of his made duties. made, respect such disclosure shall been whom have unlawful any registered security or transaction transactions such within a period exceeding six months after such inure to disclosure shall *9 by person the issuer unless and be recoverable such shall have had no ground reasonable to believe that the disclosure was confidential performance corporate or was in the . made duties. . .” (Emphasis added.) meaning provision, Hearings
As
this
to the
ascribed to
see
before the
Banking
Currency
Cong.,
on
84,
Committee on
and
S. Res. No.
72d
Sess.,
97,
Cong.,
2d
73d
1st
S. Res. Nos. 56
and 2d Sess.
6555, 6558, 6560-6561; Hearings before Committee on Interstate and
Foreign
8720,
Cong.,
on
H. R.
Commerce
H. R. 7852 and
73d
2d
provision
hearings
Sess.
These
to indicate that
the
135-137.
seem
anticipated problems
was omitted from
because of
the final act
Corp.,
231,
administration. See
Smolowe v. Delendo
136 F. 2d
also
236;
Lehman,
Rattner v.
those has left the Act as it here, was.13 And so interpretation far as the this 16 (b) record shows was the until year the view of Commission it intervened last the Rattner case the Court of case. Indeed (b) relied in Commission Rule X-16A-3 Appeals insider-partners report only which required to the amount holdings holdings by their own and not the amount of the since partnership. changed While the Commission has require holdings this rule to disclosure of partnership too, its explaining change official release the stated that the as a prin new rule was “not intended modification of the ciples governing liability short-swing transactions the case of Rattner v. (b) under Section 16 as set forth 14 Congress Lehman .. ..” might (b) can and amend 16§ if present policy argu the Commission would to it the it presented us, ments has to but we think an proper agency change interpretation is the to the Act change if made. passage, unbroken since its the is to be Second. petitioner and the Commission contend required individually that Thomas should be pay $98,686.77 profit Tide the Water entire Lehman Brothers ground realized on the that under partnership law he co-owner of the entire undivided amount and has there “[O]nly by partner- fore “realized” it all. holding director liable for the entire short-swing profits realized firm,” “an urged, prophylactic it is can effective statutory policy the stated ... be fully enforced.” But Report Exchange See Seventeenth Annual of the Securities and Commission, p. (1962); Eighteenth (1963). Report, p. Annual Congress. reports These were submitted to Exchange (Septem Securities Commission Release No. 4754 1952). again 24, amended, ber Rule X-16A-3 effective March requirements partner any report to delete amount held issuer’s securities but the substance in the rule still contained Commission’sinstructions to its Forms 3 making reports required (a). and 4 which are used for under 16§ *10 414
liability (b) by gen- under is to be determined neither § by adding “prophylactic” nor to partnership eral law (b). That clearly prescribed § itself effect for that a director is judicial section no room doubt leaves him” pay company only “any profit to to his realized added.) short-swing (Emphasis It from transactions. to nothing say be but a fiction that Thomas “real- would all the earned of which profits partnership ized” a member. It not error to refuse to hold he was Thomas liable for he did make.
Third. It is contended that both courts below erred failing recovery to allow interest on the of Thomas’ share profits. (b) says nothing Section 16 one or the has way about interest other. This Court said in a kindred situation that “interest is not recovered according rigid theory compensation money given in withheld, response but considerations of It is its ineq- fairness. when exaction would be denied States, uitable.” Board Commissioners v. United S. 352. Both U. courts below denied here interest say and we cannot the denial unfair was either so inequitable require upset or so as us to it.
Affirmed. disposition Mr. Justice Stewart took no of this case.
Mr. whom The Douglas, Justice with Chief Justice concurs, dissenting. today substantially
What the Court does to eliminate great “the Street from trading operation Wall firms” Judge (b), Clark stated dissent F. Appeals. Court of 2d 799. This fol- result wide dispersion partners lows because of the of invest- banking among major ment firms our corporations. Bros, partners has on 100 today’s boards. Under
415 can a rich harvest on the “inside ruling that firm make each 16 the Act covers because § information” which only for his distributive share of the partner need account partners other information,” firm’s on “inside the keeping the This is a mutilation of the Act. balance. partnership meaning
If a can be a “director” within the (a), “any by him,” 16 then realized as those profit § profits, all (b), words are used 16 includes the § them, a which the realized merely portion pf partnership on the “inside information.” There is no basis reason pur- a a for saying partnership for cannot be “director” Lehman, poses Act. In Rattner v. F. 2d the 193 567,1 Judge Learned Hand said he was “not prepared to that a say” partnership could not be considered a “direc- tor,” adding “for purposes some the common law does treat a firm a jural person.” In his a partnership view might be a “director” within if meaning it § “deputed partner” a represent its interests. Yet designation formal is no significant more than informal approval. Everyone that the banking- knows investment corporation consciously alliances are constructed so as to increase the profits of the bankers. In partnership law a raged debate has long partnership over whether is an
1 The Rattner decision was rendered at a time when the Securities Exchange Commission, pursuant regulatory power, provided to its reporting requirement (a) for partner-director which allowed a § only equity to disclose corporation that amount of the securities of the question by partnership held his representing proportionate partnership. interest Rule X-16A-3. After the Rattner deci sion that Rule was amended to read: partner required
“A is report respect who under 240.16a-l § any equity security partnership owned shall include in his report equity security part the entire amount of such owned nership. may, elects, He if he so disclose the extent of his interest partnership partnership in the CFR, transactions.” Supp., (b). Cum. Loss, Regulation, 240.16a-3 See Securities § (1961). 2, pp. Vol. 1102-1104 will-o’-the-wisp of that Pursuit
entity aggregate. anor aggregate its New York with For even not profitable. consid- may be or recognizes partnership that a theory to make It is easier entity purposes.2 for some an ered than of 16 purposes a “director” every “per- (a) speaks Section 16 opposite. hold the *12 (9) “person” is (a) a In 3§ son” who is “director.” 3 alia, Thus, “a include, partnership.” defined to inter of provisions a to the subject partnership section. reading 16 need not on a strained of that turn scope and present problem At the root of the are the fiduciary In liability arising of out of relations. degree strictly has been construed. liability modern times through Appeals, speaking The New York Court of Chief Judge Salmon, Y. 458, Cardozo Meinhard v. 249 N. 545, joint E. held a to a standard higher 164 N. adventurer today: upon than we insist
“Many
permissible
forms of conduct
a work-
aday
acting
world for those
at
for-
length,
arm’s
are
by
to those bound
A
fiduciary
bidden
ties.
trustee
2
Schwartzman,
Matter
App.
636-637,
262
635,
Div.
Y. S.
30 N.
882,
568,
22,
2d
884,
holding partnership
aff’d 288 N. Y.
42
E. 2d
a
N.
legal entity
purposes
be
Unemployment
a
for
Insurance
Equitable
Law;
Soc.,
Mendelsohn
Assurance
152,
v.
178 Misc.
Life
154,
733, 735,
“attorneys
holding
partners
33 N. Y. S. 2d
as
are but
person”
Rules of Civil
Travelers Ind.
purposes
Practice;
one
for
Unger, 4
Co. v.
955, 959,
892, 896, holding
2d
Misc.
158 N. Y. S. 2d
regarded
partnership
legal entity
purposes
a
"is
be
for the
a
Ratner,
pleading.”
Bernard
And see
v.
N. Y. S. 2d 717.
Trucking Co.,
A P
In United States v. &
is held to stricter honesty place. punctilio market Not but the alone, standard sensitive, of an honor the most then the developed has a tradi- of behavior. As to this there unbending Uncompro- and inveterate. tion that has been the attitude of courts mising rigidity when undermine undi- equity petitioned to the rule of by par- loyalty 'disintegrating vided erosion’ (Wendt Fischer, exceptions 439, ticular v. 243 N. Y. 444). Only thus has the level of conduct for fiduci- kept higher aries been at level than that trodden consciously the crowd. It will be lowered any judgment of Y., this court.” 249 N. at 546. E.,N. at Darrow,
In Mosser v. S. we a reor- U. allowed ganization surcharged trustee to be $43,447.46 *13 employees through trading made securities of bankrupt company. subsidiaries We made this rul- ing though even “no hint proof there was or that he has corrupt any been or that he interest, present future, has or permitted the he has employees these to make.” Id., at 275. We said:
“These strict prohibitions would serve little pur- if pose the trustee were free to authorize others to do he is what forbidden. there it charge While is no here, it obvious that open up oppor- would tunities for dealings devious name of the others the trustee could not conduct in his own. The man motives of are too complex equity separate for to in the case of acquiring its trustees the motive of efficient from help of favoring any motives for help, reason at all or anticipation from of counterfavors later to come. think that which We the trustee had right no to he had right do no to and that authorize, for forbidden benefit transactions were as
the the on behalf of have been they others as would himself. trustee deli- sought limit difficult and . equity
. has concerning its own trustee fact-finding cate tasks their for the reason that such transactions precluding prohibition and the trace, is often difficult effect against the estate —it is against injuring merely is not That this has of trust. position profiting out concerned, is are occurred, employees far as the so Id.; at undenied.” 271-273. Congress to take action to
It that the failure of said of the Rattner case somehow consequences remedy to infuse or shows a on the other that Rattner meaning gave it. We took § 16 with Yankees, New York Toolson v. S. U. that course ruling made in 1922 that 356, and adhered to Court laws, scope not within the the antitrust baseball was thirty years because the business had been “left understanding subject it was to” develop, on Id., then had p. qualms those laws. 357. Even we what we said Girouard v. two Justices dissented. For States, United usual 69, represents 328 U. S. our atti congressional find in tude: “It is at treacherous to best controlling of a adoption alone rule df law.” silence *14 Toucey Co., York Ins. v. New said in We U. S. Life 140-141: indulging suggest
“It is in the merest fiction to that the doctrine pronounce eyes open which for the first time we are asked to with our light consideration, obviously firmly in the of full was so and and Congress the texture of our law that of effect enacted it through regard There is no occasion here its silence. to the silence Congress commanding plainly more its own and of as than unmistak- Congress ably spoken This not situation words. a where has having requested to failed to act after been act or where circum- Toolson here and thus apply principle is ironic to It vested, practice notoriously so unethical as sanction, as information. profiting on inside give much when we a strict forget history
We in Other People’s narrow construction. Brandeis and happy of “a Money of the office “director” as spoke He said that hunting ground” investment bankers. lays golden “The has been considered goose eggs that profitable valuable But even more possession. most by somebody taking golden eggs laid privilege goose. else’s The investment bankers their associates Id., that 12. enjoy privilege.” now at hearings Exchange led the Securities Act The replete episodes showing are with how insiders exploited personal gain for their information” “inside came as which to them fiduciaries an therefore body asset of the entire holders. The security Senate Report practices “predatory operations.” labeled those Rep. Cong., p. S. 2d It Sess., No. 73d 68. said:
“Among the most practices vicious unearthed at the hearings before the subcommittee was the fla- grant betrayal of their fiduciary duties directors corporations officers who positions used their of trust and the confidential information which came to them in positions, such them in aid their market Closely activities. allied type to this abuse was the unscrupulous employment of inside information by large stockholders while who, stances are such ordinarily expected would be to act. provisions subject have never been compre §265 legislative hensive exceptions reexamination. Even the referable to legislation have been schemes, incidental features statutory of other Interpleader such as the explicit Removal and Acts. The and com prehensive policy of the Act of 1793 has been left intact. To find significance Congressional nonaction under these circumstances is significance find where there is none.” *15 over sufficient control officers, exercised
directors them to to enable companies of their the destinies by information not available profit acquire 792, No. 73d Id., Rep. also S. at 55. See others.” p. 9. Cong., 2d Sess., Brandéis 16 was the one theory embodied §
The Rayburn as follows: It was stated Sam espoused. people’s of other charged with the administration “Men their own inside information for money must not use 13. Rep. 1383, Cong., H. R. No. 73d 2d Sess. advantage.” all one share in partner allows but today we do What one on the table. places the feast which the him in They in turn can offer feasts to the 99 other com- they of which are directors.5 14 L. Rev. panies Stan. This a 192, fiduciary prin- 198. result is dilution ciple Congress is, Act. wrote into It all respect, possible only by with a dilution that reading now, strained of the law. the courts have Until given principle fiduciary reception. cordial We restoring should not leave to the task of edifice that it erected and we tear down. proper approach problem interlocking to the directorates
through agency banking expressed of an investment house was Judge Fahy Board, App. Lehman v. Civil Aeronautics 93 U. S. involving Appendix D. C. 209 F. 2d a case this same firm. See opinion. to this *16 OF
APPENDIX TO OPINION MR. DOUGLAS. JUSTICE Board, supra, App. S. Lehman v. Civil Aeronautics U. C., 2d, 209 F. at 292-294. 85-87, D. at American; is a director of Pan “Petitioner Lehman is a director National petitioner Joseph A. Thomas Export Lines, Inc.; peti- and American Airlines, Inc., L. Ehrman a director of Continental tioner Frederick is D. Hertz is a director of Lines, Inc., Air and Mr. John All the com- Corporation. Consolidated Vultee Aircraft so must panies referred to are the aeronautic field and interlocking kind of relation- approval have Board of the ships approved. which are made unlawful unless Messrs. Thomas, Ehrman, are also Lehman, Hertz, others, Brothers, which, of Lehman a partnership members pointed out, an previously banking conducts investment business.
“The Board held that an individual Lehman Brothers (a) company who is a director of a partner Section 409 a representative partner of another who is a director of company. relationships another such The thus found to disapproved as involving exist were to those Pan Ameri- can and Pan National; Export American and American Lines; Pan American and Consolidated Vultee; National American; and Pan National Vultee; and Consolidated Air Continental Lines and Consolidated . . Vultee. . “More precisely the Board concluded a Lehman Brothers partner who director of an air carrier has a representative 'who represents . such . . director as . . . (a) director’ another company Section 409 if another partner Brothers is a director of the latter, coupled with the circumstances that he seeks behalf of Lehman Brothers the security underwriting merger negotiation services used by company of which he is underwriting director. The of security issues and the constitute substantial merger negotiations conduct Brothers, who have been of Lehman business by Sec- infrequently purposes for these employed partners feel free to solicit companies. (a) tion 409 firm. for their business in the consider the facts the case “. . But we must . keep developing light industry unhealthy interlocking relation- free aviation *17 only as the though must be carried out ships, findings point up which provides. statute The relevant dispute. underwriting not in The activi- problem the are of its ties of Lehman Brothers is a substantial busi- substantial fees are also obtained Lehman ness; merger Profits from negotiations. Brothers from the fees partners. (a) companies, are shared the Section 409 partners Lehman as directors, with Brothers need and use of types services, partner both directors seek the such for the In partnership. doing they business so act representatives as It partnership. follows that they representatives act as partners, fellow some of air representation whom are directors of carriers. Is this meaning Thomas, within the of the statute? Does Mr. to use his as is case who a Lehman Brothers illustrative, partner Airlines, represent, and also a director National Airlines, as National Mr. another Lehman, director partner Lehman Brothers Pan director of American? think that the the Board We affirmative answer of should not the be disturbed. For situation comes to more than community sharing some of interest and some of common particular as partners. benefits The common interest and among industry benefits are of the regulated directors respect industry The link partnership with to matters. merely type does not extend to a business remote from industry the aeronautical which the are partners directors; respect it is with to business activities air companies carriers and other aeronautical enumerated In (a). only- Section these activities there is not representation by partner part- literal one of another particular but the nership business business is as well the business of aeronautical of which enterprises partners again are directors. Mr. Thomas, When illustrate, guide director of National seeks to company’s underwriting he to Lehman Brothers business Mr. acts the interest and for the benefit of only underwriting who is partner not but is also a carrier, of an air director Pan American. Mr. Lehman partner same Mr. Lehman the The director. separate him required per- Board into two as it Mr. sonalities, were, say rep- Thomas him partner director, resents as a but not as a as is if, is in representation regard carry- the case to the here, ing on the affairs of (a) companies. Section grows undoubted representation part- which out of the think nership directorships we follows into the when the transactions engaged only by partners are not but *18 companies concern regulated statute, which partners representation are directors. This within not only language meaning but the statute.”