# Opposition Brief — Blau v. Lamb > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385603_0082%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Opposition Brief - **Published:** January 1, 1967 - **Citation:** 385 U.S. 1002 ## Text Ean emia enarreeetronegemrssiey or bea enge ep gun J - «! e ° owes eet RT. Le Be LIBRARY bs | ‘In THE. * Supreme Court uf the Hnited States Octoser TERM, 1966 _ os eae ee a No. 720 Sie a) ISADORE BLAU, a stockholder of AIR-WAY INDUS- TRIES, INC., suing on behalf of himself and all other stockholders similarly’ situated and on cae and i in the - right of atthe page, Inc., US. * EDWARD LAMB and EDWARD LAMB "ENTERPRISES, INC, Respondents. On PETITION FOR A’ Wart’ OF CERTIORARI TO THE Unrrep STATES Court OF APPEALS. FOR THE SECOND Circuit | & BRIEF FOR RESPONDENTS IN OPPOSITION : . . 4 e ALBERT R. ;CONNELLY | ‘RoBERT RosENMAN | Counsel for Resbenieas. : ‘One Chase Manhattan Plaza ~ New York, New York 10005 : CRAVATH, SWAINE & MoorE Of Counsel. / 4 ~*~ November 7, 1966. a ark ° ; . P ‘ r © e F y ‘ eae . . © 2 : : . ; a ‘ JOHN F. DAVIS, CLERK wy . Petitioner, ’ o , | ts “te ©. ‘ , \ INDEX fe : 4 PAGE eS % ‘ a COUNTERSTATEMENT OF Questions Priisknrep cove. : SUMMARY OF Bases FOR DENIAL OF PETITION aie a7 5a “Tae Facrs . Ge ee te OC a Th, Rete ao = ‘ (1) The Gaiters ee eer ae oy (2) The Transfer ‘Between Corporate Pockets ° ae ath Ae sue eaens eh euseer 5 ARGUMENT “9... a: aha oe eens I..No Conrticr or- Decisions parte. votes Ss IT. THE Question or Lrasitity WITH RESPECT a , TO THE .CONVERSION TRANSACTION Is oF | LiMiTED .IMPoRTANCE. BECAUSE SucH ate ’ Transactions Have Now Breen EXEMPTED e _ From Section 16(b) By Rute’ ae g JI. Tue DECISION ON THE TRANSFER BETWEEN f Corporate Pockets TRANSACTION Is Lim- - ee ae ITED TO THE Facts oF Tus CASE AND > Does tee : Not’ HAVE BroaD SIGNIFICANCE reteeeees 8 vA os IV. THE Decision “BELow as To Bor. TRANs- AcTIoNs Was CorRECT .. prieqyenenraine oA : ConcLusIoNn Peete ee ve 10: RIPON AGS eo Oh RS z Bhs aa ® . | : Peake Ee ie es PAGE Basalt Rock Co. v. Cominissioner, 180°F. 2d 281 (of ~~~ Cir, 1950), cert, dénied, 339 U. S.966-v:.....-.. 8° . Beal v. United States, 182. F-24565 (6th Cir. 1950), "Gert, Ugned, WOU. S: B26... ees ce eee vi Blau v. Mission Corp.; 212 F. 2d 77 (2d Cir, 1954), cert. denied, 347 VU. = ET EE eeo mane Heli-Coil: Lon. v. Webster, 352 F. 2d 156 eA ae gs 1965)/....0:06.5 ee ee ee ty ef United States v. Abrams; 197 F. 2d 803 (6th Cir. Ge 1952), cert. denied, 344 U. S; 855 cmiceu Ss eee ae United Statés v. Community Servs., Inc., 189 F. 2d ye 421 (4th Cir. 3 cert. denied, 342 U. S.932'. 8 a . Statutes -—_ — : Section . 16(b), Samui Ricca: Act of. 1934, 48 Stat. 896, 15 U. S. C. 78 p(bJ (1964) ........ 46. | passim 31Ged. Reg. 3391 ee, amending 17 C.F. RR. 240. 16b-9 (1964) EER SON eee D 8; 11 ~~ Stira, Denial of Certionsvi® Despite* a. Conflict, 66 Harv. L. Rev. 465 if ois Ea dee ere me Gurwees : 8 \ a jae ek CS + In THE’ - * Supreme Court of the Buited States - Ocrpner TERM, 1966 Tsabore. BLauv, a stockholder of Atr-Way . InvusTRIES, INC., suing on behalf of him- self. and all other stockholders ” similarly ‘situated. and on behalf and in the right of J. - Air-Way Industries, ee , hee s . ees Gititioner, » No. 720 a US. : Epwarp Lams and Epwarp LAMB ENTERPRISES, INC., Respondents. ON PETITION FOR A Waar ¢ OF ie cea, TO THE : Unive) STATES CourT OF APPEALS FOR THE SECOND CrrcuItT © | ® BRIEF FOR RESPONDENTS IN OPPOSITION - rf COUNTERSTATEMENT OF QUESTIONS PRESENTED + ape The questions presented by the Petition, although stated by the Petitioner in the form of five questions, are in aie . stance only two: aa (1) Js there any liability wale Section 16¢b) of the ne _ Securities Exchange Act of 1934 for a-“profit realized” _ by an insider by reason of the acquisition of -a convertible security and the conversion thereof within six months where the convertible security and the security into which ‘it is. coriverted aré’economic equivalents i in terms of their oppor- : é - for appreciation in market. valet as . } 2 | *(2), Does the acquisition of pecurities mee an issuer, by _ an insider corporation constitute a “purchase” of the secu- - rities within the meaning of Section 16(b) of the Secu-— rities Exchange Act of 1934 where the owners. of 100% of the acquiring insider corporation. own 97 % of the trans- . ferring: nent aN : ‘SUMMARY wd BASES FOR OR DENIAL OF: PETITION -Q) Withyrespect to. ‘the first question, no decision of a - United States Court of Appeals conflicts with the decision - in this case. In a similar fact situation, the Court of Ap- peals for the Third Circuit relied upon a different rationale in coming to the identical conclusion that-no liability exists. . Moreover, the decision. below is of limited importance be, . -- cause the Securities. and. Exchange Commission has now . .adopted a rule exempting from Section 16(b) all similar, | , transactions after. the effective date of the rule. . (2) With respect to the second question, no clean 3 of «a Court of Appeals conflicts with the decision in this case, and Petitioner does not assert. that a conflict exists. The decision is limited to the facts of this case and does not have any broad significance. i e (3) The decision below as to both transactions was cor- THE FACTS Sle Pueaek aN Petitioner ‘seeks review of the decision of the Court of ‘\Kapeale for the Second Circuit (a copy of which is at- _ tached to the Petition) to the extent that it held that two’ . transactions (referred to herein as the “Conversion Trans-. . action” ‘and the! “Transfer Between Corporate Pockets - — er nyo 2 - a } 3° Transaction”) did 1 not aay in any liability under Section 16(b) of the Securities Excharige Act of 1934." . : 1) TH Cunciidiien, Transaction. > In June 1955 the decision was made. to. ‘combine. Air- Way indusfies, Inc. (““Air-Way”) with Lamb Industries, Inc. (“Lamb Industries”). At the time, Edward Lamb - (“Lamb”),-members of his family, and corporations con- trolled by them. owned at least 3514% of the outstanding ° _ shares of Common Stock of Air-Way and had five of their nominees among the seven directors of Air-Way (R. | A7, 9).” Lamb, members of his family, and corporations controlled by them owned = %.. of Lamb Industries (R. A7). On June 9, 1955, the’ Board. of Directors of Air-Way approved an offer to the shareholders.of Lamb Industries to exchange one share of 5% Cumulative Convertible Pre- - . ferred Stock-of Air-Way for each five shares of Common’ © Stock of Lamb Industries (R. A10). The Air-Way Pre- ferred was convertible at any time into Air-Way Common | at a rate of 314.shares of"Air-Way Common for each share. - of Air-Way Prefered. In the event of any stock dividend — or split-up by reclassification or other method of the shares ‘of Air-Way Common; the number of shares of Air-Way - Common - into ‘which the shares of Air-Way, Preferred’ | were convertible would be appropyiately adjusted (R. A49- .- 2). In ceils with ‘Air-Way’ s offer, Lamb and Edward Lamb Bate prises, Inc. (“Lamp Enterprises ”), @ corpora- - 855; United States v. Community Servs., Inc., 189-F. 2d 421 (4th Cir. 1951), cert. denied, 342 U. S. . 932: Basalt Rock Co. v. Commissioner, 180 F. 2d 281 (9th Cir. 1950), cert. denied, 339 U. S, 966; Beal v. United States, 182 F. 2d 565 (6th Cir. 1950), cert. denied,340 U.S. 852;.see Stern, Denial of Certiorari Despite a Con- aes flict, 66 Harv. L. Rev, 465-(1953) (describing. the above ‘ cases). Those cases all involved clear conflicts’ among.cir-- cuits and several involved : questions applicable to a large number of pending claims arising” prior to the change of ’ law; neither factor i is present in this case. IIL. THE DECISION ON THE TRANSFER BETWEEN 1 COR: _. PORATE POCKETS TRANSACTION IS LIMITED TO THE ~ a _ FACTS OF THIS CASE AND DOES NOT HAVE BROAD . + SIGNIFICANCE. | : The decision that the teanider-of shares between Lamb "Industries (97% owned by Lamb interests) and Lamb - Enterprises (100% ownéd by Lamb interests) did got con- BS stitute a “putchase”’ under Section 16(b) is timited to the particular fact situation. -The Court of Appeals explicitly ' dined to formulate a general rule (R>A98). Therefore, there is no “special and important: “reason” pF. this. Couirt “ee review that decision. 7 ° cy ae THE DEGISION BELOW AS TO. BOTH TRANSACTIONS . 5 WAS CORRECT. The decision was ‘correct. -In accordance with clear , Congressional intent, and contrary to Petitioner’s.conten- tion (Petition, page 13), the decision below does not require '. proof in each case that the insider obtained or misused con® . _fidential information in ordet to establish liability under Section 16(b). The Court of Appeals held that in deter- mining whether a conversion is a “sale” within the mean- ing of Section 16(b) “the question is whether the conver- - sion facilitates short-term. speculative trading in the issuer’s . preferred. ” (R. A93) “It coricluded that, because tHe conversion did not alter the insider’s investment position, - the purchase and conversion within six months could not be-used by an insider to facilitate short-term speculation. The Court of Appeals held therefore that the conversion =~ was not |a “sdle” within the meaning of Section 16(b). : - Ina rat situation, the Third Circuit in Heli-Coil C orp. _v-Webster, supra, also held that there was no liability, but | on the basis that there was no “profit realized”. The Secu- rities and Exchange ission in its amicus brief sup- ported the latter rationale. Un er rationale, the : “result in so far as Respondents are concerne there is no liability under Section 16(b).* . The Court of Appeals’ holding that the transfer of an equity security from a company 97% controlled by Respon- dents to another company 100% controlled by Respondents ‘Petitioner incorrectly states (Petition, page 12 and footnote 6) that the Congressional history: shows an intention to include conver- sions as “sales”, None of the authorities cited. in footnote 6 of the Petition supports that statement. : aoe 10 “a not a “purchase” is in Seacied with the only other deci- sién in point, Blau v. ‘Mission Corp., 212 F. 2d 77 (2d Cir. 1954), cert. denied, 347 U. S. 1016, and with the position taken by the’ Securities and Exchange Commission in its amicus brief. ney | ‘CONCLUSION B Mts eee: Pb. | The Petition seeks review ; of a decision that (i) is not in . conflict with a decision of the Court of Appeals of anyother _ * circuit, (ii) in so far as it relates to the Conversion Trans-_ action is of very limited significatice because of the adoption, * by the Securities and Exchange Commission of Rule 16b-9, and (iii) in-so far as it relates to the Transfer Between ’ . Corporate Pockets Transaction is of limited significance — because it-is applicable, only to the facts of this case. | Furthermore, the decision below on both transactions is. Clearly correct. Accordingly, the petition for. a writ of certiorari should be denied. Respectfully submitted, ALBERT R. CONNELLY - RoBERT ROSENMAN Counsel for Respondents - Qne Chase Manhattan Plaza ; New York, New York 10005 . CRAVATH, Swatne: & i oer ' Of 4 ounsel. November 7, 1966. . » ani ‘ : ‘ S 11 : Rule 16b-9 Under the Securities: or Act of 1934 sa) Se cE , (Effective February 17, 1966) . _ Exemption from section 16( b) of transactions involving the conversion of equity spourtiiee. (a) -Any acquisition or disposition of an equity security ‘involved i in the conversion of an equity. security which, by | its terms or pursuant to the terms of the corporate charter or other governing instruments, is convertible immediately or after a stated period of time into another equity security of the same issuer, shall be exempt. from the operation: of - section 16(b) of the Act:. Provided, however, That this section shall not apply to the extent that there shall have been either (1) a purchase of any equity security of the class convertible (including a any acquisition of or change in a conversion privilege) and a sale of any equity security of _ the class issuable upon conversion, -or (2) a sale of any '. equity security of .the class convertible and any purchase of any equity’ security issuable upon coniversion (otherwise than in a transaction involved in such conversion,or in a transaction exempted by any other rule under section 16(b) ) within a period -of less than 6 ee a includes the - date of conversion. '(b) For the purpose. of this section, an ‘equity neaites “shall not be deemed to be acquired or disposed of upon con- version of an equity security if the terms of the equity se- ‘curity converted require the payment or entail the receipt, in _ connection with such conversion, of cash or. other property (other than equity securities involved in the conversion) ' equal in value at the time of conversion to more than 15 per- ‘cent of the value of the equity security. issued upon con- version. (c) For the purpose ot this section, an equity security shall be deemed convertible if it is convertible at the option of the holder or of some other person or by operation of _ the terms of the security or the governing instruments. » 3 --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385603_0082%3A2. Public record. Not legal advice.